BLBG:Pound Falls After Inflation Slows As IMF Says More Easing Needed
The pound fell for the first time in three days versus the dollar as a report showed U.K. inflation slowed and the International Monetary Fund said more stimulus such as quantitative easing is needed to boost the economy.
Sterling slid against 11 of its 16 most-traded peers, while gilts pared declines. Consumer prices rose 3 percent from a year earlier, down from 3.5 percent in March, the Office for National Statistics said today in London. The median forecast of 30 analysts in a Bloomberg News survey was 3.1 percent. Chancellor of the Exchequer George Osborne should consider greater fiscal stimulus including temporary tax cuts, the IMF said in a report.
“It looks like a line hasn’t been drawn under QE and today’s inflation figures will slow down sterling’s recent surge,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “After the pound’s recent good run the market has found itself a bit long and was looking for an excuse to sell.”
A long position is a bet an asset will gain in value.
The pound fell 0.3 percent to $1.5782 at 10:55 a.m. London time. It fell to $1.5733 on May 18, the lowest level since March 16. Sterling was little changed at 80.90 pence per euro.
Sterling has appreciated 2.8 percent this year, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1 percent and the euro lost 0.6 percent.
Easing Recommended
The Bank of England needs to inject more stimulus into the U.K. economy through more bond purchases or by cutting interest rates as “large” risks from the euro-area crisis may derail growth and inflationary pressures remain weak, the IMF said.
Bank of England policy makers held their bond-purchase program at 325 billion pounds this month. Minutes of the May 9- 10 policy meeting, showing how policy makers voted, will be published tomorrow.
U.K. government bonds declined for a second day after Germany’s Finance Minister Wolfgang Schaeuble said he will consider all ideas to bolster euro-area growth, damping demand for haven assets.
The 10-year yield rose two basis points, or 0.02 percentage point, to 1.86 percent. The rate earlier advanced to 1.90 percent. The 4 percent bond due March 2022 slid 0.160, or 1.60 pounds per 1,000-pound face amount, to 119.070. The two-year yield was little changed at 0.30 percent.
Budget Report
Gilts have advanced 1.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries gained 1.3 percent and German bunds returned 3 percent, the indexes show.
Britain had an underlying budget deficit of 13.8 billion pounds in April, the first month of the fiscal year, another report showed.
The figure, which excludes support for banks, compared with 9.1 billion pounds a year earlier, the Office for National Statistics said. Revenue rose 1.3 percent in April from a year earlier and spending increased 3.8 percent.
The public finances received a one-time boost of 30.3 billion pounds from the transfer of Royal Mail Group Ltd. pension assets to the public sector and the impact of the central bank’s Special Liquidity Scheme. This left a budget surplus of 16.5 billion pounds last month.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net;
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
