marctomarket.com / By Marc Chandler / March 6, 2013
Of the major central banks meeting this week, the Bank of England seems the most likely to alter policy. It would not be exactly surprising as three members of the MPC including the governor voted to resume gilt purchases last month.
Most data, outside some housing price indices and the CIPS service sector survey, warns that the UK economy has failed to catch. To call it a triple dip, as is popular in the press, is a conceptual error because it implies two recoveries. Unlike the US and Germany, the UK economy remains well below its pre-crisis peak.
We had seen the possibility of a stronger sterling bounce following the loss of the UK’s triple-A rating, which had long been rumored. However, sterling peaked on Tuesday near $1.5200; about half a cent above where it was on the eve of the downgrade. It fell to new lows in late NY Wednesday to its lowest level since July 2010 ahead of the BOE meeting.
Even though sterling has eclipsed the yen as the weakest major currency this year, the risks in the UK appear on the rise. The economic challenges are spilling over into politics and it appears to be moving toward a climax.