Sterling at 18-month low as interest rate is held

STERLING came under renewed pressure yesterday amid warnings that interest rates could stay at rock bottom throughout 2015.

The pound fell to a fresh 18month low of $1.5035 against the US dollar before recovering as investors bet rates will rise in the US before the UK.

With the British economy showing signs of cooling, and inflation heading ever lower, the Bank of England held rates at 0.5pc for the 71st month in a row yesterday.

‘Rates look unlikely to start rising until the second half of the year, and could even be delayed until 2016 if the economic data deteriorate in the coming months,’ said Chris Williamson, chief economist at Markit.

Mark Carney is likely to be forced to write to George Osborne next week to explain why inflation is so low.

The Bank of England Governor must write an open letter to the Chancellor if inflation moves more than one percentage point away from the 2pc target.

Official figures on Tuesday are expected to show inflation tumbled below 1pc in December.

Carney is likely to blame the tumbling oil price which has fallen from around $115 a barrel in June to below $50 recently, slashing the price of petrol.

The supermarket price war has also seen food prices fall.

‘For now the Governor will be focusing less on the timing of higher rates and more on an explanatory letter to the Chancellor, given the likelihood that inflation dropped below 1pc in December,’ said Philip Shaw, an economist at Investec.