Bank sees further slide in dollar

STERLING leapt to nine-month highs above $1.90 today after Bank of England chief economist Charlie Bean said the dollar would need to fall further if America's economic imbalances are to be eliminated.

Bean said that while foreigners could be expected to fund the US current account deficit for a while, 'overseas investors are unlikely to continue accumulating dollar assets at the current rate indefinitely'.

He added: 'At some stage, action will have to be taken to close the US fiscal deficit and, when that happens, the real value of the dollar will need to fall if a sharp slowdown is to be avoided there.'

While not predicting the scale of that correction, he pointed to the 30% fall in the dollar when America's twin deficits were addressed in the 1980s.

Bean said uncertainties facing the British economy made it impossible to say whether interest rates had peaked.

'Neither I nor my colleagues on the monetary policy committee know how the data will unfold over the coming months and quarters, and it is the data that will determine where interest rates go next,' he said.

Bean said a slowdown in the housing market need not affect consumer demand. 'While the prospects for the housing market look softer than in the recent past, that need not imply a substantial slowing in consumers' expenditure,' he said.