Dubai: The pound weakened to an eight-month low against the dollar after Bank of England officials said they may need to buy more bonds to keep borrowing costs low as the recovery falters.

The pound fell for the first time in four days versus the euro as policymakers said in the minutes of their September 8 meeting that economic growth in the second half of 2011 may be "materially weaker" than projected in August.

UK Business Secretary Vince Cable repeated a call for the central bank to buy assets other than government bonds. The pound also weakened after an industry report showed consumer confidence dropped to a four-month low in August. Gilts declined.

Measures

"The Bank of England is making clear that further measures will be used if the situation worsens, and therefore the pound reacted negatively to the minutes," said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. "The outlook for the UK and the global economy is very uncertain and there are a lot of downside risks."

The pound declined 0.8 per cent to $1.5615 in mid-afternoon in London, after earlier falling to $1.5592, the weakest level since January 12.

The currency depreciated 0.5 per cent to 87.53 pence per euro, and slid 0.9 per cent to 119.27 yen.

Most of the nine-member Monetary Policy Committee said an expansion of the £200 billion bond purchase programme was "increasingly probable," the minutes showed. The committee voted 8-1 to maintain the current size of the plan and was unanimous in keeping the benchmark at a record low 0.5 per cent. Officials considered ways of loosening policy, including "changing the maturity of the portfolio of assets held" and "revisiting the earlier decision" not to cut the interest rate below 0.5 per cent.

"The shift in the discussion of the MPC has moved more than the market was anticipating," said Ian Stannard, London-based head of European foreign-exchange strategy at Morgan Stanley. "The pound is increasingly going to become exposed to the global slowdown."

Lowest in 15 months

The rand depreciated to a 15-month low against the dollar as concern Europe's debt crisis will cause funding problems for the region's banks prompted investors to shun riskier emerging-market assets.

The currency of Africa's biggest economy slumped as much as 3.3 per cent to 7.9638 per dollar, its weakest level since May 25, 2010. It traded 2.1 per cent down at 7.8733 per dollar in Johannesburg. Against the euro, the rand declined 2.2 per cent to 10.7746.

"As the withdrawal of liquidity in Europe takes hold, so those banks need to try and raise capital and one way to do so would be to liquidate existing exposures in higher yielding emerging markets," Tradition Analytics strategists led by Johannesburg-based Quinten Bertenshaw wrote in a research note. "Whilst these liquidity constraints persist, the rand will struggle."

— With inputs from agencies