Pound Strengthens as Osborne Retains BOE’s 2% Inflation Target

The pound advanced as Chancellor of the Exchequer George Osborne said the government will keep the Bank of England’s 2 percent target inflation target and allow room for “tradeoffs” in the decision-making process.

Sterling pared a drop versus the euro. The government is reviewing the central bank’s remit, including the potential provision of forward guidance on interest rates, Osborne said today in parliament. Government bonds pared a decline.

The pound strengthened 0.3 percent to $1.5138 at 1:05 p.m. London time. It was 0.2 percent weaker at 85.48 pence per euro after earlier sliding 0.8 percent.

Sterling has weakened 4.7 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. It fell amid speculation the Bank of England would boost its asset-purchase program to revive the economy and counter the impact of Osborne’s austerity program. The central bank last increased the target for bond purchases in July, increasing it by 50 billion pounds to 375 billion pounds.

Inflation has stayed above the Bank of England’s 2 percent target for each of the past 39 months. The next central bank policy decision is scheduled for April 4 and Governor Mervyn King is due to be replaced in July by Mark Carney, who currently heads Canada’s central bank.

U.K. government bonds returned 1.2 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net.

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