Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education



Front Page

World

UK

UK Politics

Business

Sci/Tech

Health

Education

Sport

Entertainment

Talking Point

In Depth

On Air

Archive
Feedback
Low Graphics
Help

Friday, May 7, 1999 Published at 07:27 GMT 08:27 UK


Business: The Economy

Talking down the pound



As UK interest rates are being left unchanged, the BBC's Chris Giles says the Bank of England tries a new method to fight the strong pound - talk it down.


[ image: Chris Giles]
Chris Giles
The Bank of England made it quite clear on Thursday that interest rates are bottoming out. They might go down a bit further but the Monetary Policy Committee (MPC) are now happy that their interest rate cuts since October have helped the economy avoid a recession.

The main problem now is that interest rates are still at this level make the UK a very attractive place for hot money lows and this is keeping the pound high and hurting exporters. A combination few people think is good for the economy.

Basking in their reputation for sensible policy decision, the MPC seems to have be banking on a novel way to get the pound down without cutting interest rates further.

Simply talking the pound down.

In a statement they released, the MPC said they might cut rates further if the pound didn't fall.

For the markets the message was clear. Either sell the pound until its value falls to a more sustainable level or let the pound stay high and suffer lower returns from holding sterling because the Bank of England will cut rates again.

The pound fell sharply in the first minutes after the statement but in later trading on Thursday it recovered all the lost ground against the Euro.

The problem with trying to talk the pound down is an age old one in economics. Unless the markets believe the MPC would really cut rates, there is no point in selling sterling. And its clear from the market reaction today, the MPC doesn't yet have the credibility to talk the pound down.

The MPC might well find it's lucky though. Economic signals from Europe have become a little more positive in the last few weeks.

This might help the Euro boost its value and get the MPC what it wants.

But that would just be chance. Until then, the MPC are finding words alone are not enough to make economic policy.



Advanced options | Search tips




Back to top | BBC News Home | BBC Homepage | ©


The Economy Contents


Relevant Stories

06 May 99 | The Economy
Interest rates frozen

06 May 99 | The Economy
Euro strengthens as rates are held





In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree