London RationalFX

RationalFX: Sterling takes hit after PM announcement

RationalFX: The pound fell yesterday after the Prime Minister announced plans to raise national insurance contributions as a way to help the post-pandemic recovery.

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In particular, the increased contributions are meant to lift the burden on the NHS to pay for social care costs.

The pound fell in response to this as the 1.25% rise is expected to have difficult implications for both employers and employees as the tax burden goes up.

This is likely to set back the recovery in UK household spending by as much as a year, with some experts predicting the tax rise significant enough to slow down the wider economic recovery over the next year.

The government are also set to raid share dividends as well, with a 1.25% increase expected to raise £600m. As a result, some forecasters have already lowered their GDP forecasts for the UK economy to a 5.2% from a previous 5.5%.

Key Announcements

GBP –  BOE Monetary Policy Report Hearings

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