LONDON: Sterling rose to its highest in more than two weeks against the dollar on Wednesday, ahead of a UK budget which could surprise some investors if it is more business-friendly and seeks to support nascent economic growth. Finance minister George Osborne, who has a tough juggling act to do, will present his 2012/13 budget at a time when the economy is showing signs of starting to recover. The independent Office for Budgetary Responsibility (OBR) is also expected to raise its growth forecasts which will be released alongside the budget. Before the budget, though, investors will scrutinise the minutes of the Bank of England's last Monetary Policy Committee (MPC) meeting. The minutes to be released at 0930 GMT will give insight on whether the MPC is looking to keep policy on hold in the coming months or considering an increase in the asset purchase programme. On the other hand, any sign of hawkishness from the committee could give sterling a lift. Against a broadly softer dollar, sterling was up 0.4 per cent at $1.5916, having risen to $1.5924 its highest level since March 2. The near-term target for the pound is the Feb. 29 high of $1.5993 with a large option barrier in place at $1.6000, traders said. The euro was steady at 83.40 pence, not far from a one-month low of 82.83 pence on Monday. "Obviously the minutes will be keenly dissected and again any change, however small, from the overtly dovish stance of late will be seized upon by the market," said a London-based spot trader. "The market is desperate for any fillips and (this) may again aid sterling's current biddish tone." BoE Chief Economist Spencer Dale, one of the more hawkish members of the Monetary Policy Committee, said on Tuesday that UK inflation may be slightly higher this year and next than the BOE forecast last month, due to the threat of higher oil prices and weak productivity growth. Latest data on Tuesday showed British annual consumer price inflation fell to 3.4 per cent in February from 3.6 per cent in January, the lowest level in more than a year but still above the consensus forecast for a drop to 3.3 per cent. UK BUDGET Some analysts say sterling could strengthen if Chancellor of the Exchequer Osborne announces measures to support growth in a fiscally neutral budget. The budget is expected to show government borrowing next year falling below 100 billion pounds for the first time since 2008/9, with austerity measures likely to remain the cornerstone. "The budget has the potential to surprise and could have an impact on sterling in the medium term," said Raghav Subbarao, currency analyst at Barclays. "If the chancellor unveils surprise measures which are business-friendly and the OBR revises forecasts significantly, these will have an impact on sterling. However, our base-case scenario is that we do not expect major changes." Subbarao expected the budget to be largely revenue-neutral as Osborne has indicated that retaining the prized AAA rating is politically important. Rating agencies like Fitch and Moody's have put the UK's credit rating on negative watch. So if the ratings agencies express their concerns about a budget that focuses too much on growth-boosting measures at the expense of deficit-reduction efforts, sterling could come under pressure.

Source