(Repeats story sent on Thursday with no changes to text)
By Jamie McGeever
LONDON, Aug 9 (Reuters) - The last thing the Bank of England wants right now, one suspects, is a precipitous fall in the value of the pound. Yet with the worst Brexit fears intensifying, that's exactly what it may have to brace for.
The BoE raised interest rates this month to a decade-high of 0.75 percent, citing its belief that the UK economy is operating almost at its "speed limit", or full capacity, raising the prospect of more home-grown inflation pressure ahead.
Inflation, while easing, has been above the Bank's medium-term target of 2 pct target for 18 months. A material fall in sterling would likely yank it back up towards 3 pct, complicating the Bank's ultra-cautious rate-raising plans.
After lifting rates last week, governor Mark Carney indicated that market pricing of only one further hike over the next 12 months and two over the next 24 was a reasonable assumption. Would he and his colleagues look through an exchange rate-driven surge in inflation, or feel compelled to tighten more aggressively?
Having agonized over last week's quarter-point move for so long and having laid out such a gradual tightening path, the suspicion is it's a decision they'd rather not have to make.
Britain has gone from the fastest-growing G7 economy to one of the slowest and was the only one to experience a slowdown in growth last year. And the uncertainty surrounding Brexit is deepening.
Ominously, the pound has begun to lurch lower. Little surprise, perhaps, after Carney said the probability of a "no deal" hard Brexit is "uncomfortably high", and UK trade minister Liam Fox put it as high as 60 percent.
The mood music is suddenly discordant. Talk is rife of stockpiling food and medicine, and the army being called in to maintain public order in the event of a hard Brexit. Prime Minister Theresa May is reported to be planning a meeting of her cabinet next month to discuss how to cope with no deal.
BREXIT LOW
The pound has plunged through $1.30 to a one-year low against the dollar, the euro is above 90 pence for the first time this year, and volatility has spiked. On a trade-weighted basis, sterling is less than 4 pct away from its Brexit low.
Options market pricing and investor positioning suggests it could get a lot worse for the pound before it gets better.
As recently as April, it was as high as $1.43 and within five cents of where it was the day before the Brexit referendum in June, 2016. It's since lost more than 10 pct, and $1.20 is now in sight.
The euro now has 95 pence in view. If that's reached, talk of euro/sterling parity will surely resurface.