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Pound seen restrained on economy woes: Reuters poll
December 5, 2012 / 2:51 PM / 5 years ago

Pound seen restrained on economy woes: Reuters poll

LONDON (Reuters) - Pound will weaken slightly against the dollar in the coming year as the UK economy risks sliding back into recession and could force the Bank of England to begin buying government bonds again, a Reuters poll showed.

Newly minted one pound coins are seen at the Royal Mint, in Cardiff March 5, 2011. REUTERS/Toby Melville

According to the poll of over 60 analysts, taken ahead of finance minister George Osborne’s autumn budget statement, the pound was seen a bit weaker in one month, at $1.60.

The currency was expected to slip to $1.59 by end-May and trade around there a year from now, consensus forecasts that are little changed from a month ago.

But the range for the 12-month horizon was relatively wide, from $1.30 to $1.78, highlighting plenty of market uncertainty.

One euro will be worth 81 pence in a month, 80p in six months and 80p this time next year, according to the poll.

“The UK economy is trundling along going nowhere,” said Kit Juckes at Societe Generale.

“The pound is the cheapest of the G10 currencies and that is its main support but, while the economy is stuck in the doldrums, the fiscal position is deteriorating and the triple-A (rating) is under threat, I don’t think it is going to make any headway.”

Britain may have escaped its second recession in four years last quarter but growth is seen marginal at best in the next 12 months. However, a slew of recent data has put the current quarter’s meager expansion expectation in danger.

Figures published this week have made grim reading for Osborne, who is due to deliver his half-yearly budget statement to parliament on Wednesday.

A darker economic outlook means Osborne is likely to commit to further spending cuts years into the future to save his flagship deficit reduction plan, though he also plans some new investment to sweeten the pill in the short term.

He said on Sunday that closing the budget gap was taking longer than forecast, while weak growth means public borrowing is not falling as planned. That could endanger Britain’s triple-A credit rating, which Osborne has pledged to defend.

The Conservative-led coalition government’s failure to deliver a strong recovery is its biggest political problem and polls show the opposition Labour party would regain power if an election were held now.


The Bank of England has pumped 375 billion pounds of money into the banking system through the purchase of government bonds after cutting rates to near-zero almost four years ago.

Recent Reuters polls have suggested the BoE had shut down its printing presses for good but the Purchasing Managers’ Indexes published this week have pushed some economists to question the need for further support. <GB/PMIS>

The euro zone, Britain’s main trading partner, is looking set for another quarter of recession but analysts still see investors turning to the pound as a relative safe haven from the common currency, which is expected to fall against the dollar. <EUR/PMIS>

“We continue to expect sterling to benefit from reserve manager flows,” said Anezka Christovova at Credit Suisse.

Polling by Snehashish Das and Shaloo Shrivastava; editing by Stephen Nisbet

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