The GBPUSD currency pair was trading down over 110 pips after the latest UK budget statement spelt more pain for UK consumers already struggling with the rising cost of living. The government maintained the energy price subsidy by allocating £100 billion to cushion households.
YOUR CAPITAL IS AT RISK. 68% OF RETAIL CFD ACCOUNTS LOSE MONEY.
However, the Office for Budget Responsibility (OBR) said that the UK is already in a recession and expects household incomes to drop by 7% over the next two years to levels last seen in 2013 relative to the broader economy.
Jeremy Hunt, the Chancellor of the Exchequer, appeased the markets by cutting the size of unfunded government spending and hiking taxes by imposing a new temporary 45% levy on electricity generators. Hunt also increased the existing windfall levy on oil producers from 25% to 35%.
However, analysts noted that most of the far-reaching reforms proposed by the government were set for implementation in 2025 after the general election and may never be implemented if the Conservative government is voted out of office, which appears quite likely.
The Chancellor also stressed that the UK would continue to “pay its way” as it has always done by lowering the GDP to public debt ratio to 97.3% in 2027/28 from 97.6% in 2025/26. So while the GBPUSD pair fell, the market reacted to the budget much better than Liz Truss’s botched mini-budget.
The pair’s decline was also accelerated by the release of the US macro data, which showed that the Philly Fed Manufacturing Index fell to -19.4. At the same time, the continuing jobless claims rose to their highest level since April.
The mixed US data further raised investor hopes that the US Federal Reserve will be less aggressive in future rate hikes. All these factors contributed to pushing the pound lower.
On a contrary note, the budget statement outlined Rishi Sunak’s fiscal priorities for the next few years. Therefore, we could say that most negative expectations about the British pound are already known.
Contrarian investors may be looking for the pound to rally higher once the markets are done processing today’s budget statement.
*This is not investment advice.
GBPUSD price chart.
The GBPUSD currency pair was trading down 110.6 pips (0.93%) following the UK budget statement.