Pound falls sharply as Bank economist sounds warning

The pound tumbled today after a Bank of England economist warned that Britain faces a "significant" risk of a double-dip recession.

Sterling hit a one-month low against the US dollar — down 1.39 cents to $1.5373 at one point — and fell 0.48 cents against the euro to 1.2208.

Vince Cable stepped out to reject the warnings that Britain may plunge into a double-dip.

The jitters surrounding the pound followed comments from Martin Weale, the newest member of the Bank's monetary policy committee that sets interest rates, who said it would be "foolish" to rule out a renewed downturn.

In his first public comments since joining the MPC this month, he also warned that the Bank's growth forecasts may be too optimistic.

The Business Secretary was more upbeat. Speaking about the likelihood of a double-dip, he said: "It's unlikely. There obviously is a risk but it's not a big risk."

Neil Mellor, a strategist at BNY Mellon, said: "We have frequently characterised the foreign exchange markets post-crisis as a beauty parade with ugly contestants. The pound certainly deserves this depiction."

Cable also played down a possibility of economic dip when the Lib-Con coalition's huge public spending cuts start to bite in coming months.

He expects his department to have to make cuts of about 25% in its budget after the comprehensive spending review in October.

"I think we have a sensible relationship with the Treasury and I don't expect we are going to get into a brawl," he said.

"We have to make our contribution to the deficit reduction but at the same time we have to have economic growth and a lot of the things that my department does is about promoting economic growth. As long as that understanding holds, I don't see this as a battle ground."

Cable was touring Aston Martin and Jaguar centres in the West Midlands to see the state of British engineering.

The yield on UK Government bonds also hit a record low as worried investors looked for safe havens. British 10-year gilts rose sharply, pushing the yield down to 2.917%, as money moved away from stocks into safer fixed-income assets.