Pound jumps as rate cut hopes fade despite policymaker's earlier optimism
Bank of England policymaker Paul Tucker warned there is still an 'amber light' flashing on inflation, suggesting rate cuts are not imminent.
The pound jumped on speculation the Bank will hold off trimming rates from 5pc next month. Sterling rose as high as $1.79 against the dollar in late trading last night.
Markets director Tucker said much of the news recently has suggested both growth and inflation are turning out weaker than expected.
Ain't no sunshine: The Bank of England is maintaining caution over rates
Since the Bank's August Inflation Report, the Eurozone had deteriorated, the US housing market has continued to slump, and unemployment has risen more than anticipated in the UK.
Meanwhile, food and energy prices had continued to fall, which could bear down on inflation.
But people's expectations for future inflation are still elevated, Tucker said, suggesting he remains wary of reducing borrowing costs.
What's more, recent falls in the value of the pound could 'offset' some of the better news on inflation, he said. A weaker currency makes imports more costly.
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