Pound suffers from interest rates decision

Sterling took a tumble yesterday as the Bank of England kept interest rates on hold and warned UK economic growth will remain “sluggish”.

The pound sank to a ninemonth low against the euro, slipping 0.8% to 1.11, as the Bank’s Monetary Policy Committee voted 6-2 to keep the cost of borrowing at a record low of 0.25%.

The UK currency also suffered versus the US dollar, dropping 0.6% to 1.31, giving up gains seen in morning trading.

In a contrast of fortunes, the FTSE 100 Index pushed higher following the announcement, closing up 63.34 points to 7,474.77 despite the Bank slashing its growth forecasts for the UK economy.

The gloomy outlook was compounded by the latest update from Britain’s dominant services sector, which eked out a small rebound last month.

Policymakers on the Bank of England’s Monetary Policy Committee voted to keep rates at 0.25%, with fewer members this month calling for a rise as lacklustre economic growth has weakened support for a hike.

In its quarterly inflation report, the bank cut its forecasts for growth to 1.7% in 2017 and 1.6% in 2018 and cautioned the squeeze on household incomes would continue, with inflation still expected to surge close to 3% in the autumn.

However, it signalled rate hikes will be needed over the next few years to rein in Brexit-fuelled inflation and said borrowing costs may rise by more than expected.

Across Europe, Germany’s Dax was down 0.2% and the Cac 40 in France rose 0.5%.

The price of oil pushed 0.7% higher to $52.72 a barrel as traders were encouraged by a fall in US commercial crude inventories.

Struggling aerospace and defence firm Cobham took off on the London market after the company signalled its turnaround could be on track.

The FTSE 250 firm, which has issued a string of recent profit warnings, swung into the black in the first half of the year.

Pre-tax profits came in at £14.3 million, compared to a £38.4m loss in the same period last year, with shares rising 11.3p to 145.3p.

The pound dropped against the dollar and the euro.