Sterling gains ground as Bank of England slashes base rate

Immediately after the Bank of England announcement at midday today, sterling lost ground against the euro but then rebounded to levels seen earlier in the week. The massive interest rate cut provided positive sentiment – echoing the Australian dollar reaction following the Reserve Bank of Australia’s decision to cut rates by 0.75% on Tuesday.

[USPRwire, Fri Nov 07 2008] Immediately after the Bank of England announcement at midday today, sterling lost ground against the euro but then rebounded to levels seen earlier in the week. The massive interest rate cut provided positive sentiment – echoing the Australian dollar reaction following the Reserve Bank of Australia’s decision to cut rates by 0.75% on Tuesday.

Senior foreign exchange dealer Craig Johnson at World First explains, “Expect sterling to soar in the short term as the markets digest the consequences of the lowest borrowing rates since the 1950s and the largest cut in 27 years. This development shows a marked change in monetary policy by the BoE who are now less concerned about spiralling inflation and are now keen to stimulate the sort of growth that would shorten and make shallow the impending recession. In fact, it now appears that the BoE are more concerned they may fail to achieve target inflation rate, coming in below the 2% they have been set.”

Jeremy Cook, World First’s chief economist predicted only a 0.5% cut earlier on Thursday, “A 50bps cut would seem sensible but may not be enough to lubricate the lending machine to a substantial degree. Whereas if they do cut by 100bps or more then we would have to argue that while we may not see a positive effect in the 'real' economy for 9-12 months, why are they using up the main weapon in our arsenal and heading towards a zero rate policy? Is it not preferable to dance with the girl that brought you, as it were?”

The scale of this cut indicates just how concerned the government is about the UK economy’s current situation and future prospects. From their actions today, it would seem to be early doors in the crisis we are heading towards.

For those with currency exposure, you need to keep a close eye on the markets this week. This bullish move may well produce the strongest pound we are likely to see for a while.

Ends

For further information, comment and quotes, please contact:

Wendy Casterton at World First on 020 7801 1060 or email: wendy.casterton@worldfirst.com

About World First:
World First is a currency exchange broker, serving both private and corporate clients. Set up in 2004 by directors Jonathan Quin and Nick Robinson, the company is experiencing very fast growth and now employs over 50 people in two offices (London, UK and Hamilton, New Zealand). It has 20,000 clients and will transact over £1 billion in 2008.
World First’s corporate clients are generally import or export companies, making regular transfers. World First helps them minimise their exchange rate risk and manage their currency exposure.

Private clients largely use broker services to purchase a property abroad, usually a second home or investment or to emigrate.

World First is also now offering currency options to SMEs and private clients through World First Markets Ltd, which is authorised and regulated in the UK by the FSA. World First is the first and currently only broker to offer currency options which have, until now, been the preserve of very large corporate organisations through their banks.