Sterling recovers as UK measures seen less austere

By Anirban Nag

LONDON, Nov 25 (Reuters) - Sterling recovered from two-week lows against the euro and inched up against the dollar on Wednesday, boosted by a government budgetary review that kept growth forecasts broadly intact and delivered less austerity than anticipated.

In the annual Autumn Statement, British finance minister George Osborne abandoned one of his ideas for big savings -- cuts to tax credits for low-earning households-- prompting a sigh of relief amongst sterling bulls who were concerned that more austerity would crimp growth and push out rate hike expectations.

Growth for 2015 was forecast to be 2.4 percent as estimated in July, Osborne told parliament, and for 2016 it was increased slightly to 2.4 percent from 2.3 in its July forecast.

"The statement was less austere and that is good for growth. As a result, sterling rose and clearly we are seeing more gains against the euro," said Petr Krpata, FX strategist at ING.

Sterling was up 0.7 percent against the euro at 70.07 pence per euro, having hit a low of 71.80 pence --its lowest in two weeks earlier in the day. It (Other OTC: ITGL - news) was 0.2 percent higher against the dollar at $1.5117, having fallen to a two-week low of $1.5053 on Tuesday.

The euro was also hurt by a Reuters report which said the European Central Bank is considering policy options such as whether to stagger charges on banks hoarding cash or to buy more debt.

With (Other OTC: WWTH - news) little over a week before the ECB's next policy meeting, numerous alternatives are open, from snapping up the bonds of towns and regions to introducing a two-tier penalty charge on banks that park money with the ECB, officials said.

In contrast to the ECB which is widely expected to ease policy, the BoE could raise interest rates at some point in 2016 . As a result the yield gap between the two UK gilt and its German counterpart widened to its highest in two weeks.

"Sterling has gathered a bit more momentum after the budget which more or less was growth positive and reassuring," said Richard de Meo, managing director at Foenix Partners.

"There was a bit of caution going into the event, but that seems to have dissipated." (Reporting by Anirban Nag; Editing by Raissa Kasolowsky)