Pound falls and FTSE rises over prospect of more quantitative easing

The pound fell to a six month low against the euro this morning over fears that the Bank of England may have to carry out further quantitative easing.

The bank’s chief economist, Spencer Dale, told the Birmingham Post and Mail: ‘There are factors of this recession that we have never seen before and we have no idea how they may play out.’ He said: ‘We must be prepared to change our views as circumstances change.’ The Institute for Fiscal Studies has also said that the government cuts may not remove the deficit and that it must be prepared to revise its policies.

The pound was worth $1.58 against the dollar and €1.12 against the euro.

Yesterday the pound was also hit when the chancellor used his Spending Review to announce news of a levy on banks, the details of which were due at 10am today.

Yesterday the Bank of England published the minutes of its Monetary Policy Committee’s last meeting. These revealed that committee members were split three ways over action to take: one member wants the bank to raise interest rates, another wants more quantitative easing (when the bank buys back government debts using newly printed cash) and the rest voted for no change.

The FTSE 100, which largely shrugged off the news of the cuts yesterday, was up 0.4% with its ten biggest gainers showing share price rises of more than 1.9%. The biggest gainer was British Airways after offering its cabin crew a pay deal that could remove the threat of Christmas strikes. Its shares were up 3.38% at £2.87.

Intercontinental Hotels shares were up 2.8% at £12.04. Yesterday, Europe’s largest hotelier raised its profit target for the year after third-quarter sales growth accelerated.

The FTSE 100’s biggest constituent, HSBC, which makes up nearly 8% of the index, was up 1.74% at £6.71

The biggest faller was Tui Travel, down 6.25% at £2.15 after the company had to restate its results after discovering £117 million of customer cash that it will now have to write off.

Tullow Oil shares were down 3.3% at £12.11 after the company revealed that an oil well in Ghana contained water not oil. Oriel Securities downgraded the company to ‘reduce’ from ‘hold’.

Gold is selling at $1346 per ounce and oil is selling at $82 per barrel.