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RationalFX : Sterling remains stable after the Budget was announced

RationalFX : Yesterday saw the announcement of Rishi Sunak’s highly anticipated Spring Budget. Almost one year on from his first budget, circumstances have most definitely changed.

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This year’s budget was largely split into two. The first part was a large extension of the support already in place. The focal point was an extension of the furlough scheme in its current state until the end of June. Thereafter, employers will be asked to contribute 10% of the wage in July and 20% in both August and September. Self-employed support, universal credit uplift, restart grants, further business rate holidays, VAT rate cut for hospitality and the increased nil rate band remaining in place were all also announced. All of which costing the government an additional 44.3bln.

This brings the current total cost of all ‘rescue spending’ in place to around 355bln. This being said, the latter part of Sunak’s budget saw the chancellor announce his road map to begin balancing the books. The main lever he decided to use was an increase in corporation tax on profits above £250,000. A rise, from the current 19%, to 25% will come into effect in 2023, with some allowances for smaller businesses. A freeze in income tax thresholds , pension, inheritance and capital gain allowances were also announced after next year’s increase, and this will remain in place until 2026.

Sunak stated that the UK’s economic recovery will take a long time, but the Office for Budget Responsibility (OBR) is now much more optimistic over the rebound. The OBR now expects that the pre-covid level of GDP will be recovered by mid-2022, six months earlier than previously expected last November. In five years’ time, however, the economy will still be 3% lower than would have been the case without the pandemic.

Markets were fairly stable after the budget, most of which had already been leaked to the press. There was a small dip after Sunak announced the hike in corporation tax but this was shortly corrected and GBP/EUR and cable remains stable into this morning. All eyes are now on Fed Chair Powell this afternoon as he makes a speech at the WSJ event. Investors will be hopeful the Federal reserve address the largely rising bond yields.

Economic Calendar

10:00 GMT – EUR retail sales (YoY) (Jan) [Prev (0.6%), Exp (-1.2%)]

17:05 GMT – Fed’s Chair Powell Speech

Source : ETFWorld.co.uk

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