Sterling fell against the dollar on Monday after a Bank of England policymaker indicated that interest rates may not have to be raised by as much or as quickly to cool inflationary pressures as many expect.
Writing in the Daily Mail, BoE Monetary Policy Committee member Andrew Sentance said current headline inflation is "temporary" and that a weak economy and housing market should help offset rising prices over the next year. Sentance echoed comments from British Finance Minister Alistair Darling over the weekend that pay awards had to be kept in check to ensure they did not add to inflationary pressure in the UK economy.
Also weighing on sterling sentiment after last week's surprisingly strong retail numbers, property website Rightmove said average asking prices fell 1.2 percent this month after a 1.2 percent gain in May. "The big debate in the UK is the battle between prices and growth," said Chris Turner, head currency strategist at ING.
He argued however that while economic data painted a dismal picture for the UK, sterling's yield at 5 percent was a factor helping to stave off deeper declines in the currency. By 1348 GMT, the pound was 0.7 percent lower against a broadly firmer dollar at $1.9605, on course for its biggest daily percentage fall in 2 weeks.
The euro was flat on the day at 79.05 pence, recovering from a slide to a near two-week low last week. Last week, official data showed inflation reached its highest level in Britain in 11 years. The Bank of England has said inflation may rise above 4 percent this year, but policymakers have to balance that with a risk that sharply slowing economic growth will push it below the 2 percent target in two years' time.
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