BLBG:Pound Is Little Changed Before BOE Publishes Inflation Re
The pound weakened for a third day against the euro, approaching a 15-month low, amid speculation the Bank of England will revise down its growth forecasts and boost its inflation predictions today.
Sterling declined against all of its 16 major peers as the U.K.’s biggest business lobby group lowered its 2013 growth projection to 1 percent from 1.4 percent and forecast monetary policy will be kept unchanged until near the end of 2014. The Bank of England’s latest Inflation Report will be published at 10:30 a.m. in London and Governor Mervyn King will give a press conference to explain the central bank’s forecasts. U.K. gilts fell, pushing the 10-year yield toward the highest since April.
“The report is likely to push up the inflation forecast but reiterate that the BOE will basically ignore the overshoots,” Rob Wood, chief economist at Berenberg Bank in London and a former Bank of England official, wrote in a note to clients yesterday. “The BOE will probably lower the growth forecasts, welcome the fall in sterling and keep open the door to more easing.”
The pound depreciated 0.3 percent to 86.13 pence per euro at 9:33 a.m. London time. It dropped 1.6 percent over the past two days and reached 87.17 pence on Feb. 1, the weakest level since October 2011. Sterling fell 0.1 percent to $1.5647 after declining to $1.5573 yesterday, matching the low set on Aug. 8.
The Confederation of British Industry said in its report that the economy will expand 0.3 percent this quarter, avoiding a triple-dip recession.
Inflation Data
A government report yesterday showed the annual inflation rate held at 2.7 percent in January. The Bank of England said on Feb. 7 that it is right to “look through” this period of above-target price growth as attempting to get it back to target sooner “would risk derailing the recovery.”
The Bank of England’s Monetary Policy Committee last week kept its asset-purchase target at 375 billion pounds and its main interest rate at 0.5 percent.
The Inflation Report press conference will be King’s penultimate one before he retires at the end of June. He will be succeeded by Bank of Canada Governor Mark Carney.
“What will be of interest is the press conference, where there may be some questions about what the weakness of sterling implies for inflation and for the economy,” said Steven Barrow, head of Group of 10 research at Standard Bank Plc in London, said yesterday. “I am on the bearish side for the pound because I think the central bank is still going to ease policy.”
Currency Returns
The pound has weakened 4 percent this year, the second- worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 2.6 percent and the dollar gained 0.1 percent.
The 10-year gilt yield climbed five basis points, or 0.05 percentage point, to 2.16 percent. The rate rose to 2.17 percent on Feb. 4, the highest since April 20. The 1.75 percent security maturing in September 2022 fell 0.395, or 3.95 pounds per 1,000- pound face amount, to 96.565.
U.K. government bonds handed investors a loss of 2.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 1.5 percent and Treasuries fell 0.9 percent.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
