Pound hits new low against the euro

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Speculation that the Bank of England will keep cutting interest rates aggressively sends pound down to €1.2176

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• Business
• Currencies

Pound hits new low against the euro

Retailers on Oxford Street have reported a significant rise in shoppers from the eurozone, who have taken advantage of the favourable exchange rate

• Graeme Wearden
• guardian.co.uk, Monday November 10 2008 16.13 GMT
• Article history

Photograph: Geoff Caddick/PA

Sterling was driven down to a new all-time low against the euro today by speculation that the Bank of England will keep cutting interest rates aggressively to avoid a protracted recession.
In a blow to UK citizens planning a winter break in Europe, the pound hit a low of €1.2176 – its lowest point since the single European currency was created.
Sterling has been falling steadily against the euro since early 2007 but its decline has accelerated in recent weeks as the likelihood of a UK recession increased.
Traders said that today's weakness was prompted by a bigger-than-expected fall in the cost of manufacturing goods in the UK, and the price of these goods leaving the factory, which sparked fears of deflation. This gives the Bank of England more leeway to lower interest rates again, following last week's shock cut to 3%.
The European Central Bank also cut rates, to 3.25%, and there is a growing consensus that that Bank of England will cut rates further than the ECB in the future.
The pound was also undermined by rumours that the UK government will announce tax cuts in a bid to stimulate the economy, a move that could weaken the public finances and push the national debt higher. It fell as low as $1.563 against the dollar, close to the five-year low touched last month.
The weakness of the pound is good news for UK exporters, whose goods become cheaper overseas. According to reports, it is also benefiting the retail sector – as Britain is becoming a more attractive place for tourists to travel to for a shopping spree.
Retailers on Oxford Street have reported a significant rise in customers from across the continent, who have taken advantage of the prevailing exchange rate to travel to London.

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Re: Pound hits new low against the euro

Does not help my business though as we buy Italian goods and they will no doubt put up our prices again. We have had two price increases already this year.