Hedge funds make record bets on a fall in the pound

BETS against the pound have hit a record high amid frenzied speculation the Bank of England will cut interest rates following the Brexit vote. Hedge funds and other speculators and investors hold more short positions against sterling than at any time since records began in 1992. That means they are betting on the pound falling even further having already dropped more than 11pc against the dollar and nearly 10pc against the euro since the vote to leave the European Union. The slump against the greenback has seen sterling reach levels last seen in the mid-1980s.

The latest assault on sterling came as figures showed British manufacturers have suffered their worst month for more than three years following the referendum – piling pressure on the Bank to cut rates.

The Bank is widely expected to cut interest rates for the first time in more than seven years on Thursday to shore up the economy. Analysts predict rates will fall from 0.5pc to a record low of 0.25pc. They also expect the Bank to print £50bn of new money by launching another round of quantitative easing. Rate cuts and money printing typically weaken a currency as investors look for better returns elsewhere. But some analysts believe that the pound is close to being oversold – and warn that if the Bank is not as bold as expected on Thursday sterling could in fact rise.

‘Action by the Bank is fully anticipated by the market,’ said Derek Halpenny, European head of global market research at Bank of Tokyo-Mitsubishi.

‘More aggressive action than simply a cut will probably be required in order to weaken the pound against the dollar.’

The pound dipped again yesterday – to around $1.32 and €1.18 – after figures showed manufacturers have suffered their worst month for three years.

Markit’s index of activity in the country’s factories – where 50 is the cut-off between growth and decline – fell from 52.4 in June to 48.2 in July. It was the weakest score since February 2013 and suggested the manufacturing sector is shrinking in the wake of the referendum.