Sterling fell to a three-month low versus the dollar on Wednesday as news that the Bank of England was unanimous on December's rate cut firmed expectations that more easing will come sooner than previously thought.
All nine members of the Monetary Policy Committee voted for a cut in interest rates to 5.5 percent when they met this month, the BoE announced on Wednesday, surprising analysts who had forecast that three would vote for rates to stay on hold.
This heightened expectations that the Bank of England is set to cut interest rates early in the first quarter of next year, eroding the pound's yield appeal. "There's a view that cuts will come earlier than previously expected," said John Noyce, senior technical analyst at Citi.
"There is a pent-up desire to sell the pound and sterling/yen looks extremely susceptible." By 1449 GMT the pound was down half a percent at $2.0043, having touched $2.0032, its lowest since September 20. The pound was down 0.7 percent to 226.79 yen. The euro was up 0.4 percent at 71.77 pence.
More bad news for the outlook for the UK economy came from weak retail sales data adding more fuel to the arguments of those calling for imminent rate cuts. The Confederation of British Industry showed that the retail sales balance fell to +8 in December from +13 in November, undershooting a consensus forecast of +10.
Continuing uncertainty over the future of mortgage lender Northern Rock is weighing on prospects for the UK economy and sterling. Britain's largest mortgage lender Bradford & Bingley denied that it was actively pursuing a bid for any part of the troubled lender.