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Sterling falls as BoE holds rates, cuts growth forecast

August 3, 2017

Sterling fell to the day’s lows against the U.S. dollar on Thursday after the Bank of England left interest rates on hold at record lows and cut its economic growth forecast for this year and next.


GBP/USD was at 1.3147 by 07.26 a.m. ET (11.26 a.m. GMT), down 0.57%. It hit a high of 1.3266 earlier, the most since mid-September 2016.


The BoE voted to keep UK interest rates on hold at 0.25% in a split decision at the conclusion of its monetary policy meeting.


Michael Saunders and Ian McCafferty, both external members of the monetary policy committee, voted in favor of raising borrowing costs. The six other members voted for no change amid concerns that the economy is showing signs of weakening.


“GDP growth had been sluggish and was expected to remain so in the near term. With some business survey expectations balances having weakened, there remained the possibility of a further softening in activity,” the minutes said.


In a new economic forecast released at the same time, the bank cut its growth forecast for 2017 to 1.7% down from a previous forecast of 1.9%.


Growth is expected to slow to 1.6% in 2018, down from a previous forecast of 1.7%.

The bank also downgraded its forecast for wage growth, saying it now expects wage growth of 3% in 2018 down from a forecast of 3.5% previously.


The pound was also sharply lower against the euro, with EUR/GBP advancing 0.33% to 0.8996, up from a low of 0.8925.

Sterling rose to the day’s highs earlier after data showing that activity in the UK service sector accelerated in June.


Financial data firm Markit reported that its services purchasing managers’ index rose to 53.8 last month, from 53.4 in June, which was a four month low.


Economists had expected a more modest increase to 53.6.

UK companies reported that new business remained solid and hiring picked up but business expectations remained relatively weak as uncertainty over Brexit continued to weigh.

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