Pound Reverses Gains as U.K. Lowers Economic Growth Forecast

Updated on
  • Government cuts GDP estimate for next year to 1.4% from 1.6%
  • Weak growth undermines fiscal-adjustment process, says CIBC

U.K. May Suffer Weak Sterling for Longer, Says Redeker

The pound edged lower and gilts rallied after the U.K. cut its economic growth forecast for next year.

Two-year bonds snapped two days of declines after Chancellor of the Exchequer Philip Hammond trimmed the nation’s estimate for gains in gross domestic product to 1.4 percent from 1.6 percent. Hammond, who is delivering his second budget, told parliament the deficit would still be below 2 percent in 2018 and said productivity continues to disappoint.

“Weak productivity and lower growth underlines weaker tax revenues, undermining the fiscal adjustment process,” said Jeremy Stretch, head of Group-of-10 foreign-exchange strategy at Canadian Imperial Bank of Commerce. “That is not such good news for sterling.”

The pound fell 0.1 percent to $1.3227, reversing earlier gains of as much as 0.2 percent. The yield on two-year gilts declined four basis points to 0.46 percent, while 10-year bonds traded steady.

Investors are keenly awaiting word on the government’s gilt issuance target for 2017-18. Analysts who took part in a survey conducted by Bloomberg forecast a cut to 113.5 billion pounds ($150 billion) from the initial 114.2 billion-pound target laid out in March.

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