Pound weakness will be negative in the medium-term

Weakness in the pound reflects a "fundamental change in British competitiveness", a top ex-Bank of England official said.

Speaking in a Bloomberg interview, Adam Posen, now the president of the Peterson Institute for International Economics, said the BoE´s reaction to the drop in the pound “goes to the question of how much faith they have this is a one-off shock or not”.

“It’s bigger than what the BOE can do,” he added.

Hence, there was going to be inflation as a result of the depreciation, he said, as it was not simply a matter of the BoE´s inflation-fighting credentials.

Posen also drew a historical comparison between the current juncture and the beginning of the 1990s, when sterling also dropped sharply after being forced to leave ERM.

It was not a "good time" for the British economy, Posen explained.

Over the short-term, the pound´s depreciation would give the economy a boost, but it would be “bad for the medium and long-term.”

Posen also referenced a prediction that he made several months before, anticipating a drop in cable´s value to between 1.15 and 1.20.