Pound declines a third day as Osborne lowers UK growth outlook

Bloomberg

The pound weakened for a third day as U.K. Chancellor of the Exchequer George Osborne lowered the nation’s growth outlook in his annual budget.
The U.K. currency dropped the most in three weeks against the dollar on Tuesday. Osborne said Wednesday the Office for Budget Responsibility revised its forecast for U.K. economic growth this year to 2 percent from a previous estimate of 2.4 percent. The Chancellor had recently warned that more savings, including public-sector spending cuts, will be required as economic risks intensify.
Against this backdrop, investors are further delaying their calls for when the Bank of England will increase interest rates. The BOE is scheduled to announce its latest policy decision on Thursday.
Sterling is the worst-performing Group-of-10 currency over the past month amid concern that Britain will quit the European Union at a June 23 referendum, threatening trade and economic stability, and keeping interest rates at a record low for longer.
This risk was also increasing the chance of a BOE rate cut in 2016, a monthly Bloomberg survey of analysts showed.

Deflation Threat
The pound fell 0.6 percent to $1.4061 as of 1:13 p.m. London time, having slid 1.1 percent on Tuesday, the biggest drop since Feb. 22. The U.K. currency weakened 0.3 percent to 78.72 pence per euro.

Central banks globally are turning to extraordinary stimulus measures to shore up their economies and ward off deflation. While global conditions have improved since last month, “the domestic picture looks softer” and could prompt the BOE’s Monetary Policy Committee to sound “dovish” on Thursday, according to Citigroup Inc.’s London-based foreign-exchange strategist Josh O’Byrne.
“We don’t expect a BOE bombshell, but there are dovish risks,” O’Byrne wrote in a note to clients and recommended betting on the pound’s decline.
The pound stayed lower versus the dollar as separate reports Wednesday showed the U.K. unemployment rate held at a decade-low of 5.1 percent in the three months through January, while weekly earnings growth picked up to 2.2 percent in the same period, from 2 percent a month earlier.