Bank of England Split

Fears over the UK economy will severely limit the scope for Sterling rallies even if further near-term selling pressure is contained given the amount of deterioration priced in.

The UK currency dipped to lows near 1.8530 in Europe on Tuesday, but resisted a further serious attack on the 1.85 level and pushed back above 1.8650 in US trading as the dollar retreated. Sterling generally drifted weaker to 0.7915 against the Euro.

Overall sentiment towards the UK economy remains weak with further expectations of a sharp deterioration in conditions and it edged lower in European trading on Wednesday. The latest CBI industrial survey also deteriorated slightly from the previous month.

According to the minutes, the Bank of England voted by a 7-2 vote for unchanged rates in August. Blanchflower voted for a cut while Besley voted for an increase, the same outcome as the previous month. The bank did voice increased fears over the growth outlook with a statement that there had been a deterioration over the past month.

There was some discussion of a rate cut which will curb Sterling support, although all outcomes were considered at the meeting which illustrates the difficulties faced by the bank.

Investica
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