FX Focus: Pound suffers biggest drop in three weeks as interest rates cut to historic low

The pound plunged on Thursday (4 August), suffering its sharpest drop in three weeks after the Bank of England (BoE) cut interest rates to a record low of 0.25% and unveiled a series of economic measures aimed at reviving the UK economy. By mid-afternoon, the pound was 1.36% lower against the euro and fell 1.41% against the dollar, exchanging hands at €1.1788 and $1.3136 respectively.

In the wake of the BoE's decision, sterling tumbled at least 1% against all of its 16 major peers.

Earlier in the day, BoE governor Mark Carney revealed the Monetary Policy Committee had unanimously vote in favour of cutting the UK's benchmark interest rate by 25 basis points (bps) to 0.25%.

The move, which Carney said was in response to worsening survey data following the country's decision to leave the European Union, was met with mixed response by analysts.

Ben Brettell, senior economist at Hargreaves Lansdown, explained the wisdom of the BoE's decision would become evident only with time. "Survey data shows referendum has caused significant uncertainty, and it seems certain some kind of negative shock is on the way," he said.

"However, sentiment is more volatile than activity, so it's possible the magnitude of the shock will be smaller than the survey data implies. Even if you accept the economy is going to get sick, I would question whether lower interest rates and more quantitative easing are the right medicine."

However, Andrew Sentance, senior economic adviser at PwC, described the move as nothing more than "a token gesture" which was unlikely to help the economy much in the current situation.

"The uncertainty created by the Brexit referendum result cannot be addressed by small changes in interest rates or other monetary measures," he explained.

"It requires a political response from the government, to make clear the nature of our future relationship with the EU - which will inevitably take time. There are some circumstances when a central bank can do little to offset the shock to the economy and the resulting uncertainty, and that is the case now."

Elsewhere, the euro slid 0.09% against the dollar to $1.1139, while the greenback was little changed against the yen at ¥101.21.