The pound rose yesterday as official figures showed the economy eked out growth at the end of last year and a top Bank of England official ruled out ‘aggressive’ interest rate cuts.
Sterling climbed half a cent to pass $1.25 versus the US dollar after the Office for National Statistics (ONS) data and comments by Bank chief economist Huw Pill.
Markets dialled back hopes of three interest rate cuts this year as the ONS data delivered a slight reprieve to the recent gloom surrounding the UK economy.
Gross domestic product grew by a sluggish 0.1 per cent in the fourth quarter of last year.
But that was better than the 0.1 per cent contraction predicted by many economists.
And Pill said that with inflation on a downward path – though it is expected to spike briefly later this year – the Bank had been able to start cutting rates.
Pound up: Sterling climbed to more than $1.25 versus the US dollar after GDP grew by a sluggish 0.1% in the fourth quarter of last year
But he warned that the ‘disinflation’ process was not yet complete.
‘That means we can’t just remove all restriction overnight, cut rates aggressively etc,’ he said, adding: ‘I would expect we’re going to cut the Bank rate further. But the pace at which you can do it is less.’
Last week the rate was reduced from 4.75 per cent to 4.5 per cent.
Pill’s caution underlines the split at the heart of the Bank’s nine-member Monetary Policy Committee.
Catherine Mann was one of two to vote for a jumbo half-percentage point cut, suggesting a worsening outlook necessitated more drastic action.
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