Sterling sinks as UK factory woes deepen

STERLING crashed to its lowest level in nearly six years yesterday as the ‘dire’ performance of Britain’s manufacturers fuelled fears over the state of the economy.

The Office for National Statistics said industrial output fell 0.7pc in November – its steepest decline since January 2013 – while factory output fell 0.4pc.

Separately, the National Institute of Economic and Social Research estimated that the UK economy grew by 2.2pc in 2015, down from 2.9pc in 2014.

The disappointing figures dented expectations that the Bank of England will raise interest rates any time soon in the UK.

The pound tumbled as low as $1.4380 against the dollar, a level not seen since mid-2010, with analysts warning it could drop below $1.40. It also hit an 11-month low against the single currency, below €1.3254.

The Ernst & Young Item Club described the industrial production figures as ‘dire’. The ONS report came just days after George Osborne warned that the UK faces ‘ a dangerous cocktail of new threats’ from around the world.

With the economy slowing and worries about China sending shockwaves through financial markets, the Bank of England is expected to leave UK interest rates at their all-time low of 0.5pc for longer than previously thought.

Analysts at JP Morgan said they now expect the first rate rise since 2007 to come in November this year rather than May.

The prospect of rates staying lower for longer in the UK, at a time when the Federal Reserve is raising rates in the US, has sent the pound lower against the dollar.

Jeremy Cook, chief economist at currency experts World First, said many traders are betting on no rate hike until 2017 as worries about Britain leaving the European Union exacerbate concerns over the economy.