Pound dives amid fears the Bank of England will slash rates AGAIN
BRITAIN's pound tumbled today amid expectations the Bank of England could cut interest rates further, after it was revealed inflation held firm.
The cost of living remained at 0.6 per cent in August, unchanged from July, as measured by the Consumer Price Inflation (CPI), showed data from the Office for National Statistics (ONS) today.
As markets perceived a greater likelihood policymakers could cut rates again, sterling immediately tumbled against both the US dollar and the euro.
The Bank slashed its base rate to 0.25 per cent at the start of August, sparking a massive fall in sterling.
It was thought the weaker pound could push up the cost of living for Britons.
But today's lower than expected inflation reading is thought to give the green light for the Bank to cut rates again.
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David Lamb, head of dealing at FEXCO Corporate Payments, said: "The impact of the weak Pound has yet to feed through to consumer prices.
“The Bank of England’s Monetary Policy Committee will see this as a vindication of its prompt decision to cut interest rates – and may now consider further cuts.
“It’s still early days, but the sense that there has been little inflationary penalty from the Bank’s initial rate cut will ensure further rate-cutting remains on the table.
“That prospect will weigh on the Pound, which faces growing downside risk in what promises to be a volatile week.”
The Bank's Monetary Policy Committee (MPC) meets this Thursday, but most experts believe rate-setters will not make changes this time around.
It's considered more likely rates will be taken down again in November.
Howard Archer, chief European & UK economist, said: "We believe it is still just about more likely than not that the Bank of England will take interest rates down to 0.10 per cent from 0.25 per cent in November.
"However, there is clearly an increased chance that the Bank of England will sit tight on interest rates in November given the current resilience of the economy, especially as the MPC may well want to see what Chancellor Philip Hammond comes up with in the Autumn Statement.
"If the Bank of England does hold fire in November, we expect interest rates to go down to 0.10 per cent early in 2017."