The pound has fallen to a five-month low against the euro.

The pound has fallen to a five-month low against the euro, as the Bank of England’s Quarterly Bulletin is published today, reaffirming that the UK’s public debt cannot be maintained in the long run.

The value of sterling has dropped to 1.1016 euros and to $1.6134 against the dollar, its weakest in three weeks.

The sterling effective exchange rate index (£ERI) has depreciated significantly since the beginning of the financial market crisis, and in the Quarterly Bulletin, the Bank tried to explain the reasons for the collapse in value of sterling since the final quarter of last year.

It said: “It is possible that sterling’s depreciation may be part of a more prolonged process of rebalancing of the UK economy, generating a fall in the long-run sustainable real exchange rate.”

Loss of foreign investors could be one of the reasons for the fall: “The financial crisis may have led overseas investors to reassess their willingness or ability to purchase sterling assets and thereby finance the UK trade deficit. As a result, the long-run sustainable real sterling exchange rate … may have fallen.

Furthermore the Bank’s programme of asset purchases, or quantitative easing, may be having an effect: “Sterling will tend to depreciate if this policy causes portfolios to be balanced away from UK assets.”

Last week, official figures showed that the UK’s public sector net borrowing totalled £16.1 billion – the highest figure on record for August. The government’s overall debt now stands at £804.8bn, or 57.5% of GDP, an increase of £172bn in the past year.

For more information and to read the full report, click here.