For growth or not for growth that is the question. Budget 2011 is going to be a budget on a shoestring, with Mr Osborne having very little ‘wiggle room’ to woe a public concerned about the speed and level of spending cuts. Of course, I would never imply that politicians try to buy votes with lavish giveaways, but if the thought had crossed his mind, the borrowing figures for February will have diminished this prospect. Public sector net borrowing - excluding the cost of bailing out the banks - hit £11.8 billion, a record for the month and above the consensus forecast of £7 billion. Even though these figures were disappointing, UK government borrowing for the financial year is still expected to fall below the original estimate of £148.5 billion, but now by only £6 billion rather than £8 billion. So the little wiggle room the Chancellor did have has just become a little tighter.

Not content with having bad borrowing figures for February, the UK economy also managed to produce a higher than expected inflation figure of 4.4% for the month, above forecasts of 4.2%. As has been discussed many times on this note the Bank of England would in ‘normal times’ have increased interest rates quite some time ago to control this inflation rate - the issue is we are not living in normal times. With low growth, large spending cuts, tax increases and high unemployment if the Bank of England were to add a rate hike to that mix, it may just push the low growth figure into no growth or even negative growth.

The latest Monetary Policy Committee (MPC) sentiment showed no change in the number of members voting for a rate rise (this would have been the only thing to offer GBP any support versus EUR).

On the back of the higher inflation figures and the expectation this would encourage the MPC to raise rates in the near term, sterling strengthened in yesterday’s trading against euro and the dollar, at 1.1530 and 1.6357 respectively. There is the possibility of significant volatility in sterling today with the combination of the budget, the release the minutes and the UK inflation figures still fresh in the mind of investors all adding to factors affecting the pound. So it is definitely worth keeping an eye on events as they unfold.