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Sterling plunges further as rate cut signalled

As we speculated yesterday it appears that the UK government is looking to go down the same track as the US authorities who recently slashed interest rates to 0%. Subtle indications from the Bank of England suggest that UK base rates may be slashed in the short term and could end up around about the 0% level. This would be a major indication of intent on behalf of the UK government and also further highlight the ever worsening situation with the UK economy.

A move to 0%, although initially carried out by the independent Bank of England, would have the full backing of the UK government who would be aware of any such move ahead of its announcement. Gordon Brown himself recently suggested that rates could fall further and as they are currently at 2% a move to 0% would not seem out of the question. Whether such a change in policy will stimulate the UK consumer and in turn stimulator the UK economy remains very much to be seen.

There is also a serious concern about the situation regarding sterling which has now fallen to record levels against a number of currencies around the world. It would appear the government has abandoned any hope for supporting sterling in the short term in favour of a fiscal stimulus programme to try and inject some life back into the UK economy.

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