Pound Slides as U.K. Tax Revenue Slump Fuels Growth Concerns

  • Signs of slowdown may weaken case for BOE rate increase
  • RBS pushes back call for higher rates to August 2016

The pound fell the most in almost four weeks against the dollar after a government report showed a drop in tax receipts and a business lobby said factory exports were the weak link in the economic recovery, which may signal the strength of the currency is hurting demand.

Sterling halted a two-day gain versus the euro as the Confederation of British Industry said its monthly measure of total factory orders slipped to minus 7 from minus 1, compared with the median forecast of zero in a Bloomberg survey of economists. Royal Bank of Scotland Group Plc pushed back its forecast for an interest-rate increase from the Bank of England to August 2016 from February, Ross Walker, a London-based economist at the lender, said in an e-mail.

The U.K. currency also weakened as Prime Minister David Cameron was said to have accepted demands from his own lawmakers that the Conservative Party remain neutral in the referendum on whether to quit the European Union.

“The data disappointed with a drop in U.K. tax revenue and CBI order book below expectations,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “The government’s shift to neutral on Europe raises the stakes on Brexit. Both economic and politics are playing a part in pushing sterling lower today.”

The pound dropped 1 percent to $1.5351 as of 4:09 p.m. London time, the steepest decline since Aug. 26. Sterling depreciated 0.6 percent to 72.55 pence per euro, having strengthened 1.6 percent over the previous two days.

Britain had the highest August budget deficit for three years as the tax take from individuals and companies dropped, the Office for National Statistics said in London on Tuesday. Spending exceeded revenue by 12.1 billion pounds compared with a deficit of 10.7 billion pounds a year earlier. Economists in a Bloomberg survey had forecast a 9.2 billion-pound shortfall.

Forward contracts based on the sterling overnight index average, or Sonia, suggest that a full 25 basis-point increase to the BOE’s 0.5 percent official bank rate won’t come until beyond November 2016.

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