Pound Falls as `Brexit' Concern Adds to Waning BOE Rates Outlook

  • Signs slow inflation holding back wage growth: BOE's Broadbent
  • Sterling stays lower after below-forecast U.S. payrolls data

The pound fell as investors judged the Bank of England’s latest economic assessments to mean officials will keep interest rates at a record low for longer.

Adding to sterling’s woes was a pick-up in concern Britain may quit the European Union. Forty-five percent of respondents to a YouGov Plc poll said they’d vote to leave in the forthcoming referendum, with 36 percent wanting to stay and 19 percent undecided. The pound stayed lower even after a report showed the U.S. economy added fewer jobs than analysts predicted last month.

The U.K. currency dropped against 10 of its 16 major peers after BOE Deputy Governor Ben Broadbent said there are signs slow inflation is holding back U.K. wage growth, one of the key indicators the central bank watches when setting interest rates. His comments came a day after officials kept borrowing costs unchanged and cited external risks in cutting their growth and inflation forecasts.

“The message from the BOE was clearly very cautious,” said Roberto Mialich, a senior foreign-exchange strategist at UniCredit SpA in Milan. “It’s clear a rate increase is not in the offing for now. This is sterling-negative.”

The pound fell 0.7 percent to $1.4494 as of 4:10 p.m. London time, after ending Thursday 0.1 percent lower. It was little changed at 76.87 pence per euro, a day after it slipped 1 percent.

In the week, sterling was up against the dollar and down versus the euro. It fell 1 percent against Europe’s shared currency, having depreciated every week except one since late November, and gained 1.7 percent to the greenback, the most in five months.

‘No Urgency’

U.K. government bonds fell for a second day. The yield on the 10-year gilt climbed two basis points, or 0.02 percentage point, to 1.58 percent. The 2 percent security due in September 2025 dropped 0.14, or 1.40 pounds per 1,000-pound face amount, to 103.705.

Broadbent told BBC Radio on Friday that there’s “no urgency” to raise the BOE’s benchmark rate from 0.5 percent, where it’s been for almost seven years.

The five-year, five-year forward retail-price swap rate, a measure of the U.K. inflation outlook, fell to 3.17 percent, within a basis point of a nine-month low reached two weeks ago. The indicator, which the central bank monitors, gauges inflation expectations over a five-year period starting five years from now.

Investors in U.K. assets are increasingly focused on the referendum on the nation’s membership of the EU, which may be held as soon as June. Prime Minister David Cameron is lobbying other government leaders ahead of a summit in Brussels on Feb. 18-19, where they’ll debate a draft plan that he hopes will soothe the nerves of Euroskeptics at home.

“Investors will probably be staying away from the pound this month,” said Jane Foley, a senior currency strategist at Rabobank International in London. “But if Cameron appears to build momentum ahead of the EU summit, I’d be looking to sell the euro against sterling.”

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