UK interest rate cut leads to sharp fall in sterling

In a blow to Irish exporters, sterling has fallen sharply against the euro, after the Bank of England cut interest rates for the first time in seven years and pumped tens of billions of pounds into the UK economy – to offset the impact of Brexit.

Announcing the moves, Bank of England governor Mark Carney warned the British economy is unlikely to grow at all for the rest of this year.

Mr Carney predicted weak growth in 2017 but said that unemployment and inflation is likely to rise and house prices to fall over the next two years.

Sterling fell by 1.3 per cent to just under €1.18 and by 1.5 per cent or 2 cents to $1.31. Shares in the FTSE100 index jumped by 1.5 per cent in response to the announcement. A weak pound makes Irish exports more expensive for importers in Britain, the most important export market for many of the Irish-owned firms which account for a large section of the workforce.

Brian Lucey, professor of finance at the school of business, Trinity College Dublin, said he did not expect sterling to bottom out until the situation regarding Britain's position in the European Union is resolved.

“The sell-off was expected and until the UK decides what it wants to do on Brexit there will be continued volatility,” he said. “The uncertainty around Brexit, more than what the reality of it might be, is causing huge damage but I’m not sure the penny has quite dropped on this as yet.”

The bank cut interest rates to 0.25 per cent and announced it will create an extra £60 billion to buy government bonds. It will buy up to £10 billion in corporate bonds to help companies generate economic activity and make up to £100 billion available to banks.