Pound seen under $2 as economy slows and Bank cuts

By Jonathan Cable

LONDON (Reuters) - The pound will weaken against the dollar over the coming year, staying below $2, as it suffers from a slowing economy and expectations for a further cut in interest rates, a Reuters poll showed.

The survey of over 60 analysts, conducted this week, showed they expect sterling to be at $1.97 in one month, $1.95 in three months, and $1.87 in 12 months time, little changed from forecasts in last month's survey.

"A progressive weakening in UK economic indicators should weigh on GBP-USD over the forecast horizon," said Kenneth Broux at Lloyds TSB, who sees the pound at $1.79 in 12 months.

In the June poll, the one-month forecast was $1.96, the three-month consensus was $1.95 and the 12-month median forecast was $1.88, a long way from a high last November of $2.10 -- a level not seen in over 25 years.

Sterling hit a two-month high of $2.0006 on Tuesday before retreating as a surprisingly strong U.S. manufacturing survey contrasted with news of a contraction in the sector in Britain.

Some strategists still see the pound at over the $2 mark in 12 months with the poll showing a wide range between $1.68 and $2.15. The highest forecast in last month's poll was also $2.15.

Sterling's current value is well above median forecasts in a poll last July, which saw the pound at $1.93 at this time. Currency strategists had not foreseen a sharp drop in U.S. economic growth, trouble in the financial sector and the Fed slashing rates as much as they have done.

The economy has not escaped the global slowdown and grew at only 0.3 percent in the first quarter, its weakest pace in three years, and a Reuters poll last month found economists forecasting economic growth at only 1.7 percent in 2008 -- a sharp slowdown from the 3.0 percent seen in 2007.