Bank of England announcements leads to drop in the pound

5 July 2013

The Bank of England has told markets they were wrong to assume it would begin raising interest rates soon, resulting in a sharp drop in the pound.

After the announcement, the Sterling immediately fell by a cent and a half against the dollar to $1.5141.

As expected, the central bank held its interest rates at the record low of 0.5 per cent and its quantitative easing programme remained unchanged.

These decisions were made during the first meeting of the bank's Monetary Policy Committee since Mark Carney took over the reigns as governor from Sir Mervyn King.

However, while the pound fell, share prices rallied in London with the prospect of the continuation of cheap borrowing costs.

The FTSE 100 index leaped 50 points after the announcement and gained even further once the European Central Bank promised to keep eurozone interest rates low.

There are signs in the UK that the economy is recovering, but the Monetary Policy Committee believes it is still weak by historical standards and that "a degree of slack is expected to persist for some time".

By Tony Aynsley

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