Pound Seen at 4-Year Low by Morgan Stanley on Growth Outlook

The pound is headed for its weakest level versus the dollar in more than four years as the currency’s subdued response to recent signs of U.K. growth points to fresh declines, according to Morgan Stanley.

Sterling weakened 2.6 percent versus the dollar in the two days through July 5, after climbing 0.8 percent on July 3, when figures showed U.K. services grew at the fastest pace in more than two years in June. Manufacturing and industrial production shrank in May from a year ago, reports today showed, casting doubt on the strength of the recovery.

“The services sector is the most important part of the U.K. economy” though historically this hasn’t been enough to support the pound on its own, Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London, said in a phone interview yesterday.

The pound will drop to $1.45 by the end of the third quarter and to $1.41 by year-end, Stannard estimates. Sterling last fell to $1.41 in March 2009.

The U.K. currency tumbled 0.7 percent to $1.4846 at 11:35 a.m. London time. It fell to $1.4832 on March 12, the lowest this year, from as high as $1.6381 on Jan. 2.

Manufacturing production declined 2.9 percent in May from a year earlier, and industrial output dropped 2.3 percent from a year ago, the Office for National Statistics said.

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