December 5, 2007 / 3:36 PM / 11 years ago

Stg hits 4-1/2 yr low vs euro, eyes on rate decision

LONDON, Dec 5 (Reuters) - Sterling fell to its lowest level against the euro in 4-1/2 years on Wednesday as weaker-than-expected economic data heaped further pressure on the Bank of England to cut interest rates on Thursday.

British service sector growth slowed to its weakest level in more than four years in November with the Chartered Institute of Purchasing and Supply/NTC activity index falling to 51.9 from 53.1 the previous month.

House prices in Britain fell 1.1 percent in November according to HBOS Plc’s Halifax house price survey, well below analysts’ expectations that prices would be flat.

“We’ve had a number of reports out today which are not good for the economic outlook,” said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

“Members of the Monetary Policy Committee said they would want to see more evidence that a cut was needed and the data, combined with credit conditions, indicates there may well be a cut tomorrow.”

By 1514 GMT, the euro had risen as high as 72.32 pence, just a little below its 72.55 pence all-time high, set in May 2003 EURGBP=. The pound was down 1.3 percent versus the dollar at $2.0324, having hit its lowest since mid October GBP=.

On the Bank of England’s trade-weighted basis, sterling fell to 99.80, slipping below the 100 mark for the first time since mid-2006 and down 0.9 percent on the day.

In a Reuters poll last week just 15 of 56 economists forecast a rate cut from 5.75 percent.

However, the stream of negative news has led analysts to increase expectations that the Bank of England is set to lower rates, with financial markets now pricing in around an 80 percent chance that it will cut.

Several banks, including RBC Capital Markets, Barclays Capital and Merrill Lynch revised their call in the aftermath of Wednesday’s data in favour of an easing.

“We now believe that a recent stream of markedly softer data and survey evidence relating to the services sector, consumer confidence and the housing market has given a decisive advantage to the rate cut case,” Global Insight said in a research note. (Reporting by Simon Falush, editing by Mike Peacock)

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