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Yesterday was of course Budget day here in the UK; a chance for George Osborne to fiddle with the economy or merely lightly tinker. He chose the latter (from a macroeconomic standpoint) and there weren’t too many surprises in his speech. Osborne and the Treasury hailed the speech and changes as a “Budget for Growth” although from where we sat it looked like a “Budget for Deficit Reduction”. It was another dose of the same fiscal medicine that had been prescribed last year and it had little impact on sterling. I won’t take you through all the headlines but growth has been revised lower in the short term to 1.7% in 2011 from 2.2% and inflation is set to stay above 4% for the rest of the year.

On inflation, and the UK’s battle against it, we also had the most recent set of minutes from the Bank of England yesterday and some of the recent hawkish tone (pressing for rate rises) was lacking. His caused the pound to weaken in the morning session before picking up slightly after lunch. The committee remained worried about high oil prices and its impact on UK growth and the more dovish elements (Posen, King) will have emphasised that this is imported inflation and not born out of wages. Let’s hope that common sense prevails and growth is a factor in their discussion and not just how high inflation is and the rate hike priced in for May does not materialise.

One market factor that has been absent from these morning updates recently has been sovereign risk in peripheral Europe. The eurozone and its currency has managed to evade market attention recently after the problems in Libya and Japan but all the attention is on them today. Portugal’s Prime Minister resigned last night after he a lost a vote on austerity measures which now pretty much guarantees that we will see a bail-out and an early election. Portuguese bond yields and the country’s CDS both leapt on this news and EUR has lost ground overnight versus its crosses. Spain has also seen 30 of its banks downgraded this morning by Moody’s; this of course follows the downgrade of the Spanish sovereign on March 10^th. The meeting today will have only one topic: Portugal.

Pound may however come in for some pressure this morning from the latest set of retail sales figures due at 09.30.

Latest exchange rates at time of writing