Sterling reaction to the budget

Budget day is always an interesting day for the markets although some budgets are more exceptional than others. As far as the currency market reaction was concerned this was an unexceptional one although more will inevitably be seen in the Autumn budget post Article 50.

Despite a big improvement in the growth forecast the pound took losses against both the Euro and the dollar. The main highlights are as follows:

  • Growth Forecast for 2017 revised up to 2%, from 1.4%
  • £350m for Scottish Government
  • £200m for the Welsh government
  • £120m for the Northern Ireland government
  • £2 billion for Social care over next 3 years
  • Introduction of T Levels & investment for science and technology
  • Increase in National Insurance contributions
  • Improvement in Borrowing Forecasts

The jump in the 2017 growth forecast in particular is a big plus for the UK and should bode well for the Pound going forward although the medium-term growth outlook is not so bright. A real focus on improving technical skills will be needed in the post Brexit world and this budget seeks to commence the move in this direction.

From a political perspective with the threat of the breakup of the Union, the additional funds that have been made available for the dissolved assemblies really act as a sweetener to keep Britain together. Considering there is a possibility that SNP leader Nicola Sturgeon will request a second Scottish independence referendum on the same day that Article 50 is invoked, then this budget could help diffuse those tensions. However, it has been reported this morning that the First Minister has indicated this Autumn would be a good time to have that second referendum and is likely to weigh on Sterling.

The rise in National Insurance contributions for self-employed individuals is the highly controversial issue in this budget and there is likely to be more from this story – Todays front page in the Mirror newspaper is titled “What’s so Funny”, The Sun goes with “Spite Van Man” whilst the Times opts for “Hammonds £2bn Tax Raid”.

House of Commons meet next week – Brexit approaches

On Monday the House of Commons will discuss the two amendments that the House of Lords have put forward surrounding the rights of EU nationals living in Britain and a second “meaningful vote” on the terms of Brexit once an EU UK deal has been prepared. Expect a particularly volatile week for the Pound as these finer details could materially change the course of Brexit. The general feeling is that the House of Commons will insist the bill is kept in its original form for Brexit to proceed. Once this clarity has been provided the Pound may begin to rally although in the current political arena anything could happen.

Now into our second week in March it is potentially only a matter of days before Article 50 is invoked. The government will likely push this centre stage for the world to see and there may well be a considerable market reaction around the time of the announcement. It would be unwise to think there wouldn’t be a reaction considering the market movements seen 24th June 2016, the day after the referendum.

Clients with a pending currency requirement may wish to look at securing prior to next week as the response could be exacerbated in view of the fact this has never been done before. Call our trading floor on 01494 725 353 or email me here to get a free quote.

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