LONDON (Reuters) - The pound fell broadly on Monday, pressured by the view that the government will slash its economic forecast and underline the need to crank up borrowing when it announces its annual budget later in the week.
Data showing a slowing fall in asking prices for homes and a report from an influential business group that the nation has passed the worst of the recession did little to help the pound, which pulled further away from a three-month high hit last week.
Chancellor Alistair Darling is expected to deliver one of the grimmest outlooks for the economy in decades when he announces the budget for fiscal 2009/2010.
“There’s a lot of nerves heading into the UK budget, which is likely to highlight problems in the UK economy and put sterling under additional pressure,” said Ian Stannard, senior forex strategist.
“The budget is going to make for some fairly unpleasant reading. There’s going to be quite a big hole for the chancellor to plug, and the market fears some nasty measures to be announced.”
Economists predict the Treasury will anticipate a 3-3.5 percent slowdown in the economy this year, much more than a forecast in November for a 0.75-1.25 percent slowdown.
The government is seen having to commit to record borrowing to rescue the hobbling economy. A Reuters poll predicts a median deficit of 160 billion pounds, eclipsing the government’s prediction in November of 118 billion pounds.
By 7:43 a.m., the pound was down roughly 1.1 percent at a session low of $1.4615, retreating from $1.4815 hit in earlier trade.
Jitters ahead of the budget has pulled the currency further away from $1.5069 hit last week for the first time since mid-January.
The pound also slid against the euro, which traded half a percent higher at 88.78 pence.
Investors sold the pound in a bid to shake out risky positions, brushing off an early rise in shares .FTSE.
Traders remained negative on the pound even after figures from property Web site Rightmove on Monday said that asking prices for homes in England and Wales fell an annual 7.3 percent in April, slowing from a 9 percent drop in March.
Also on Monday, the Confederation of British Industry (CBI) said the recession will ease in the second quarter of this year, although it warned that the recovery will be “slow and fragile”.
CBI Director-General Richard Lambert said aggressive rate cuts, the weaker pound, low inflation and the global fiscal stimulus would slow the decline in Britain this year.
Reporting by Naomi Tajitsu