Sterling slumped to its lowest level since October against the euro as the Bank of England cut its economic forecasts, prompting traders and economists to conclude that it will be next year at least before interest rates in the world's fifth-largest economy will rise.
The announcement knocked the sterling/euro rate above 90 pence for the first time this year. This was followed by hawkish remarks from BoE's Governor Mark Carney and chief economist Andy Haldane, that a rate increase may be needed despite a weakening economy.
Mr Carney said Brexit uncertainty "weighs on the decisions of businesses and households and holds down both demand and supply". Growth then picks up to just above its reduced potential rate over the balance of the forecast period.
Mr Carney said the Bank believes households and the wider economy could withstand a rate hike, "if appropriate". Additionally, expected wage growth - which is a major factor in the BOE's monetary policy decisions - was slashed to 3% from 3.5% for 2018.
Against the euro, the pound tanked 0.7% to EUR1.106 from EUR1.115 on Wednesday, marking the lowest trading level since November past year. The bank's outlook for growth, inflation and consumer borrowing are all contingent on the government's ability to negotiate a divorce settlement that minimises any disruption to trade and investment.
Bank of England Deputy Governor Ben Broadbent said the shadow of Brexit is holding back United Kingdom investment, even though the economy has all the right conditions in place for a pickup. They have been at that level since August previous year.
The Bank of England on Thursday cut its annual growth estimate for 2017 to 1.7 percent from 1.9 percent previously, and for 2018 to 1.6 percent from 1.7 percent. "However, the dovish growth and inflation (forecasts were) a surprise to the markets", Neil Jones, Mizuho's head of hedge fund FX sales, told Reuters.
The day before, Monetary Policy Committee members voted by a margin of six to two to keep Bank Rate at 0.25%.
This was down from a split of 5-3 at the last meeting in June, the closest it has come to raising rates in a decade. Cash savers who have been clinging on in the hope of higher rates will probably find they have to travel further than expected to get to the pot of gold at the end of the rainbow. "We are sticking to our view that Bank Rate will remain at 0.25% until 2019".
But US bank Citi said the BoE was probably more anxious about the risks of a disorderly Brexit than it let show.
There were no changes to the bond-buying programme at the latest meeting.
"The 6-2 vote was as expected". He added that Brexit uncertainty was also hitting pay negotiations.
The UK economy is in "a little bit" of a better position to shoulder an interest rate rise, according to a Bank of England policymaker.
Britain avoided a recession after the Brexit vote in June 2016, inflation is running above the BoE's 2 per cent target and unemployment is at a four-decade low.