Sterling hit a seven-year low against the dollar on Tuesday after the head of the Bank of England said he did not have a "set timetable" for raising interest rates and warned on the spillover effects of a slowing Chinese economy. The pound was earlier given some respite from what has been a brutal start to the year after data showed Britain's ultra-low inflation rose to its highest rate in almost a year in December, beating economists' expectations.
But it fell back after BoE Governor Mark Carney's comments at the University of London, to $1.4206, its weakest since March 2009. That left it almost 5 percent weaker than where it was trading just a month ago. Carney said global and domestic growth had proved weaker than he had expected in the middle of last year, when he predicted that a decision on when to raise interest rates would have come into "sharper relief" by early 2016, and that he would have to see stronger growth and inflation before any rate hike.
"Carney says now is not yet the time to raise interest rates, suggesting moderating wages raise questions on labour slack," said Neil Jones, head of hedge fund FX sales at Mizuho in London. "Certainly such rhetoric pushes back rate hike expectations more firmly into next year." Carney also said the "adjustment" in China was not over and would subdue global growth and inflation for some time, and that the central bank detected some economic uncertainty ahead of a referendum on Britain's European Union membership.
Earlier data from the Office for National Statistics showed consumer prices inched up 0.1 percent on the month to take the annual rate of inflation to 0.2 percent. That compared with economists' expectations for a flat reading and a 0.1 percent gain respectively. Against the euro, sterling was flat on the day at 76.49 pence after Carney finished talking, having earlier traded as much as 0.9 percent stronger at 75.825 pence. "We don't think (the data) changes the picture for the BoE," said Barclays currency strategist Nikolaos Sgouropoulos. The British bank last week pushed back its expectation for when the BoE will start to raise interest rates to the fourth quarter of this year, having previously bet on the first quarter.
The pound has skidded almost 10 percent against the dollar over the past six months, with around half of that fall coming in the last month, as investors have pushed back their bets on rate rises. Against the euro its decline has been even more rapid: an 8 percent fall in the same number of weeks.
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