STERLING has hit its lowest levels against the dollar since 2010 on Monetary Policy Committee concerns that the pound could rise further against the euro and thus keep UK inflation below target for longer.

 

This view was revealed in newly-published minutes of the Bank of England committee's latest meeting, held on March 4 and 5, and it increased market expectations that there will be no rise in UK base rates from their record low of 0.5 per cent in the immediate future.

Sterling fell below $1.4650 in morning trading, in the wake of publication of the minutes.

All nine members of the MPC voted to hold rates two weeks ago, and maintain the scale of the Bank of England's stimulatory quantitative easing programme at £375 billion.

The minutes state that two members regarded the decision to hold rates as "finely balanced". This almost certainly refers to Martin Weale and Ian McCafferty, external MPC members who in January abandoned their previous calls for a quarter-point rise in rates.

MPC members' discussion of the pound's recent appreciation, primarily against the euro, was highlighted in the latest minutes. Members noted the likely downward influence on the euro of the European Central Bank's further easing of monetary policy, through its asset purchase programme and also the possible impact of "reasonably positive UK, US and other international data flow over the past month".

Setting out MPC members' views on the future path of sterling, the minutes state: "Although monetary policy at home and abroad was only one of the many factors that influenced the exchange rate, especially in the near term, there was a risk that divergent monetary policy trends, as well as stronger prospects for growth in the United Kingdom than in the euro area, might continue to put upward pressure on the sterling exchange rate.

"This had the potential to prolong the period for which CPI (consumer prices index) inflation would remain below the [two per cent] target and exacerbate the risk that lower expectations of inflation might become more persistent."

MPC members believed the expenditure breakdown of UK gross domestic product growth in the fourth quarter had given "some pause for thought". They noted an unexpected fall in business investment, and weaker-than-expected consumer spending growth.