More QE in offing as pound hits a low

The pound hit a fresh six-month low against the euro yesterday as speculation mounted that the Bank of England is closing in on a fresh round of money printing.

Sterling slumped to just over €1.12, having touched levels not seen since April as markets saw further monetary stimulus measures become increasing likely.

A raft of downbeat economic data and fears of a double-dip recession amid swingeing public sector spending cuts have turned up the heat on the Bank of England (BoE).

News on Thursday of a further drop in September retail sales, when analysts had been expecting a modest rise, has prompted further calls for central bank policymakers to boost their 200 billion quantitative easing (QE) programme to help support economic recovery.

A second bout of QE would mean putting more cash into circulation, which has depressed sterling in recent weeks, sending it down against the euro and the dollar.

While a weaker pound could boost UK exports, it also means higher costs, which could be passed on to the consumer.

Fears of a further spike in inflation add to the headache facing the BoE's monetary policy committee (MPC). Yesterday's currency fluctuations came as MPC member Andrew Sentance claimed the economic recovery showed signs of momentum, led by manufacturing and helped by a competitive pound and stronger global demand.

Reacting to Wednesday's Spending Review, which outlined more than 80bn of public sector cuts, Sentance said: "Overall, I do not think the review will endanger our recovery. It is the private sector which provides the engine of growth for the British economy

"The last time public spending was cut back - in the 1990s - the private sector created more than two million new jobs."

Sentance, seen as the MPC's most hawkish member, has voted for a quarter-point interest rate rise since June. One other member, Adam Posen, voted for 50bn more QE at its October meeting, while the seven other members wanted no change.