Pound Weakens After Darling Says U.K.’s Deficit Will Increase
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By Keith Jenkins
Dec. 9 (Bloomberg) -- The pound fell against the euro and the dollar on concern U.K. Chancellor of the Exchequer Alistair Darling’s pre-budget measures will fail to bolster the nation’s ailing finances.
Sterling weakened against 14 of the 16 most-traded currencies tracked by Bloomberg after Darling told lawmakers that Britain’s budget deficit will be 611 billion pounds ($990 billion) in the next four years, 5 billion pounds more than previously forecast. The economy will shrink 4.75 percent this year, Darling said, compared with a March estimate of between 3.75 percent and 3.25 percent.
“Sterling still looks vulnerable,” said Ian Stannard, a foreign-exchange strategist at BNP Paribas SA in London. “There are no real measures here to start to tackle concerns that financial markets and investors are likely to have.”
Sterling fell for the fifth consecutive day against the dollar, dropping to $1.6233 as of 4:45 p.m. in London, from $1.6287 yesterday. It traded at $1.6168 earlier, the lowest level since Oct. 15. The pound also weakened to 90.66 pence per euro, from 90.27 pence.
Trailing in opinion polls before an election that he must hold by June, Prime Minister Gordon Brown is balancing the need to clamp down on a record peacetime budget deficit while extending support for voters struggling to keep their jobs. Darling’s proposals, announced to Parliament today, included a 50 percent levy on banker bonuses and an increase in income taxes after the election.
Moody’s Report
“Darling has done too little to rein in the deficit,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London.
Moody’s Investors Service said yesterday the U.S. and U.K.’s top ratings may “test the Aaa boundaries” because their public finances are worsening in the wake of the global financial crisis.
U.K. public debt will climb to 89.3 percent of gross domestic product in 2010, from 75.3 percent this year, according to a June forecasts from the Organization for Economic Cooperation and Development.
The pound’s drop below its 50-day moving average against the dollar may signal it’s poised to extend declines in coming weeks, according to Lloyds Banking Group Plc.
The British currency broke below the threshold of $1.6410 two days ago. The last time it slid below the average, on Sept. 17, it dropped to $1.5708 within the next three weeks.
‘Worrying Parallels’
“There are worrying parallels with late September when a move through the then 50-day moving average of $1.6249 triggered a clearout and squeezed the cross,” Kenneth Broux, a market economist at Lloyds, wrote in an e-mailed report today.
U.K. consumer confidence stayed close to the highest level in 1 1/2 years in November, Nationwide Building Society said today. The index of consumer sentiment was at 73, the same as in October and one point lower than September’s reading. The U.K.’s trade deficit unexpectedly widened to 7.1 billion pounds, the highest level since January, from a revised 6.9 billion pounds in September, the Office for National Statistics said.
The Bank of England’s Monetary Policy Committee, headed by Governor Mervyn King, will leave the key interest rate unchanged at a record low of 0.5 percent tomorrow, according to all 53 economists polled in a Bloomberg survey. The central bank will also maintain its asset-purchase plan, begun in March to help lower borrowing costs, at 200 billion pounds, according to a separate Bloomberg survey.
To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net
Last Updated: December 9, 2009 12:09 EST
