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The outlook for the pound is grim and it will weaken further from this week's lows against the dollar in the coming year as fears about a worsening British economy persist, analysts predicted in a Reuters poll.
The survey of over 60 analysts, taken mostly after British Finance Minister Alistair Darling said that the economy was facing its toughest time in 60 years, found all of them cutting their forecasts from August.
The poll, conducted Aug 29-Sept 3, showed they expect sterling to remain down at $1.8 in one month and three months before weakening to $1.74 in 12 months' time, considerably lower than forecasts in last month's survey.
Sterling slumped to 81.62 pence against the euro this week, a low not seen in the near 10-year life of the common currency, and a two-and-a-half year low against the dollar of $1.7669 as depressing news about the UK economy continued to emerge.
"If you saw how the housebuilders had performed, how the domestic banks had performed, if you looked at how the economy was performing, if you looked at how the whole political structure was having an effect, you could see that sterling was in for a very rough ride," said David Bloom at HSBC.
"It was a slam dunk that sterling was going to get absolutely pasted."
In the August poll the one month forecast was $1.95, the three month consensus was $1.94 and the 12-month median forecast was $1.85, a long way from the high of $2.10 last November, a level not seen in over 25 years.
The forecasts in this month's poll ranged from $1.55 to $2.00 in a year, considerably lower than the $1.60-$2.15 range in last month's poll.
Strategists have lowered their 12-month forecasts for sterling by 6.5% and their one-month horizon by 7.7%, the largest change in the median forecast for both time horizons over the last 14 monthly Reuters forex polls.
Analysts were wrong footed by sterling's sharp decline of around 8.2% of its value during August, and the lowest forecast of $1.913 in last month's poll was some 900 pips above the $1.8211 where the pound ended last month.
Sterling has fared just as badly against the euro and cross rates calculated by Reuters show one euro worth 80 pence in six months time and 78.9 pence in a year.
In last month's poll the euro was forecast at 79.4 pence in six months and 78 pence in a year.
ECONOMY FLOUNDERS
Sterling's current value is well below the 12-month forecast of $1.94 in last September's poll as Britain's economy has not escaped a global economic downturn that started over a year ago with mortgage problems in the United States.
The UK economy ground to a halt in the second quarter of this year, the first quarter it has failed to grow since 1992, and economists last month predicted just 1.4% growth this year — a sharp slowdown from the 3.0% seen in 2007. See
The Organisation for Economic Co-operation and Development said on Tuesday the British economy was the only one of the G7 heading into recession as gross domestic product (GDP) was likely to contract in both the third and fourth quarters.
"GDP growth in the UK is slowing much more than expected, thus opening the door to monetary easing next year. This should drive sterling even lower," said Asmara Jamaleh at Intesa Sanpaolo.
The Bank of England has not been able to follow the path of the U.S. Federal Reserve in slashing interest rates to boost the economy because inflation has been running at double its two% target.
The BoE is expected to hold interest rates at five percent when it meets on Thursday, and through to early 2009, despite the raft of gloomy data.
