Pound Declines as U.K. Inflation Data Underpin Low-Rate Outlook

  • Sterling pares drop as U.K. judge says Brexit may be delayed
  • BOE not considering expansion of any of its programs: Carney

British Pound Wins With Trump Victory

The pound fell for a second day versus the dollar as a report showed U.K. inflation unexpectedly slowed in October, bolstering speculation that interest rates will stay low for longer.

Sterling pared losses against its major peers after a U.K. judge said exit from the European Union may be delayed. The currency fell earlier after the Office for National Statistics said annual consumer-price growth was 0.9 percent last month, compared with 1 percent in September. The rate was forecast to increase to 1.1 percent, according to the median estimate in a Bloomberg survey of economists. Bank of England Governor Mark Carney told lawmakers that sterling weakness was due to the outlook for slower U.K. growth.

“The data surprised on the downside and that added to my bearish sterling view,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “What Carney said appeared to be justifying a lower pound. If anything, there’s likely to be more downside to the currency than upside in the near term.”

The pound fell 0.3 percent to $1.2455 as of 3:15 p.m. New York time, after sliding 0.8 percent Monday. The U.K. currency is down more than 16 percent since Britain voted in June to leave the EU.

The currency got a brief boost after Supreme Court Judge Brenda Hale said the U.K. may need “comprehensive” legislation to start the Brexit process, which could take as long as two years, Sky News reported, citing a speech in Kuala Lumpur.

Sterling weakened for the first time in five days versus the euro, dropping 0.20 percent. The pound strengthened 3.2 percent last week, its best performance versus Europe’s shared currency since July 2015.

BOE officials this month shifted to a neutral policy stance, saying their tolerance for faster price gains is limited. Annual inflation was as low as 0.3 percent in May. The neutral path is “appropriate” and officials aren’t considering expansion of any of the central bank’s programs, Carney said in testimony to lawmakers Tuesday.

The BOE governor also told lawmakers that the drop in the pound was a “necessary” part of the adjustment to the nation’s current-account deficit, adding that “future events will determine whether it’s appropriate.”

The central bank’s nine-member Monetary Policy Committee cut interest rates in August and increased its asset-purchase target as part of a suite of stimulus measures to help boost the economy after the U.K. voted to quit the EU.

— With assistance by Anchalee Worrachate, and Susanne Barton

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