Sterling slipped towards a 15-month low against a buoyant dollar on Wednesday ahead of Finance Minister George Osborne’s half-yearly budget update and a survey on Britain’s services sector activity.
In the update, Osborne will try to convince investors that his plan for more spending cuts are more credible than the Opposition Labour Party’s less aggressive austerity proposals.
Analysts say that while the British economy has performed well in the past couple of years, public finances have not improved at the same pace and so borrowings are higher than last year.
“The Chancellor will have to substantially revise up borrowing projections for this year and for coming years. For the currency, it will signal further softness ahead as it will limit the scope for the Bank of England to raise rates anytime soon as fiscal policy remains comparatively tight,’’ FXPro chief economist, Simon Smith, said.
Sterling fell to $1.5620, close to Monday’s low of $1.5585 — the pound’s weakest since early September last year.
The pound was trading higher against the euro with the single currency down 0.2 percent at 79.02 pence. The euro was sold ahead of an European Central Bank meeting on Thursday. Policymakers in the euro zone are grappling with declining inflation expectations which are likely to prompt them to ease policy sooner rather than later.
Back in Britain, investors will eye the services sector purchasing managers’ index for cues. Data is due at 0930 GMT and is likely to show that the sector grew at a healthy pace.
The services industry makes up almost 80 per cent of the UK economy and its health is therefore an important consideration for the Bank of England when deciding when to raise interest rates.
UK rate forecasts have been pushed back dramatically over the past few months, with some now not expecting a hike until 2016. That pushback of expectations has weighed on the pound, sending it down almost 9 per cent since it hit a six-year high near $1.72 in July when many had expected a hike this year.