BlackRock Sells Pound on Doubts about British Economy

Thursday, 07 Mar 2013 03:56 PM

 

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BlackRock Inc. said it sold the pound after the Bank of England left its asset-purchase program unchanged Thursday because the company questions Britain’s leaders’ ability to guide the nation out of an economic slump.

“We sold sterling to express our view, given our already underweight position in gilt,” Scott Thiel, the head of global fundamental fixed-income at the world’s biggest money manager, said in e-mailed comments. BlackRock is “cautious” on the U.K. because of “consistently above-target inflation, the coalition government struggling to maintain a cohesive message” and London’s waning dominance as an international business center.

Pacific Investment Management Co. also holds fewer pounds than its benchmarks recommend, Thomas Kressin, head of European foreign-exchange, said in a Feb. 25 interview. FX Concepts LLC shares Pimco’s view that the pound is still overvalued even after its 6.1 percent decline this year and is poised to fall further.

The Monetary Policy Committee led by Governor Mervyn King maintained its target for quantitative easing at 375 billion pounds ($565 billion). Current Governor Mervyn King, who gives way to Bank of Canada Governor Mark Carney in July, has said a weaker pound would help rebalance the economy.

King and two of his Monetary Policy Committee colleagues voted to expand so-called quantitative easing at the central bank’s Feb. 7 meeting, though they were outvoted by the six other members, according to minutes released Feb. 20.

Rating Downgrade

Moody’s Investors Service cut Britain’s credit rating to Aa1 from Aaa on Feb. 22, citing continuing weakness in the economy. Analysts have lowered their year-end forecasts for sterling against the euro by 4.8 percent this year to 83 pence, according to the median estimate of analysts surveyed by Bloomberg.

With Carney’s arrival in July spurring a debate on the BOE’s remit, the Treasury said Thursday that Chancellor of the Exchequer George Osborne will consider the bank’s 2 percent inflation target in his budget this month as he does every year. The Financial Times reported that Osborne may announce a change to the existing monetary framework in the budget.

Inflation was 2.7 percent in January, and the MPC has said its current mandate is already flexible and they plan to “look through” the price surge to aid the economy.

“Any consideration by the U.K. government or the Bank of England for changes to the bank’s mandate that would appear to be either reactive or not go through a thorough vetting process would place additional downward pressure on the currency,” the London-based Thiel said.

© Copyright 2014 Bloomberg News. All rights reserved.

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