Pre EU Referendum Budget Announced

Yesterday saw UK Chancellor George Osborne announce his 8th budget as he and the rest of the Conservative party continue working to removing the budget deficit by 2020. Some of the key points from the budget included:

  • Growth forecast revised down from 2.4% to 2% in 2016.
  • A tax on the makers of sugary soft drinks with the proceeds being paid into primary school sports.
  • A help to save scheme was launched which would provide low paid workers with an additional contribution if they save.
  • Beer, cider and spirits duties to be frozen.
  • Excise duties on tobacco to rise by 2% above inflation.
  • Annual ISA limit to rise from £15,240 to £20,000
  • Top rate tax will be raised from £42,385 to £45,000.
  • £230m spent on road improvements, £700m on flood defences and £115m to tackle homelessness.

Chancellor Osborne announced that this budget meant the UK economy was now well prepared to handle the economic risks that currently exist. He went on to state that the UK was on course to clear the deficit by 2020. However, the fact that the growth forecast was revised down meant we saw Sterling exchange rates drop. While Jamie Oliver may be happy with the budget due to the Government finally attempting to tackle childhood obesity, investors are unlikely to be impressed as the UK’s growth is likely to be slower than originally thought and therefore Sterling will remain under pressure.

On a more positive note UK unemployment, announced during the morning trading session, fell by 28,000 and it was confirmed the number of people in work was the joint highest level since records began in 1971. This was not enough to counter the negative news from the budget which resulted in seeing Sterling slide.

Bank of England Set to Confirm Latest Interest Rate Decision

Today we are set to hear the latest interest rate announcement from the Bank of England’s (BoE) Monetary Policy Committee. It is widely expected that interest rates will remain on hold at 0.5%. However, partly due to the fact that the UK growth was downgraded and partly due to the challenging economic climate there is now a 23% chance the BoE will actually cut interest rates this year rather than hike. This news is damaging for the Pound and means today’s meeting will be watched even more intensely than usual. Even the mere suggestion of a rate cut is likely to lead to significant weakness and while in my opinion I don’t believe that the BoE will cut rates they are likely to want to remain vigilant and not rule out such a move.

With yesterdays announcements and the BoEs decision today regarding interest rates, now would be a good time to get in touch with your broker to discuss potential currency requirements. Call our trading floor on 01494 725 353 or email me here.

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