There have been mixed reactions to Chancellor Rishi Sunak’s latest spending plans. Those reactions, of course, have been driven by each individual’s own stakes and thus rewards from the spending decisions made. The Chancellor even received condemnation from the Speaker of the House of Commons for swerving parliamentary procedure and declaring most of Wednesday’s budget to the British public before Parliament. The currency markets of course paid their own close attention to the budget and a look at GBP price action since the details became public do not reveal a huge reaction.
One of the reasons for the limited reaction is that despite the headline spending pledges dropping prematurely onto newspaper headlines, the details of the budget remain obscure. The Chancellor will be expected to provide more clarity to the House tomorrow and it is therefore possible we see a stronger reaction in GBP over subsequent trading sessions. So far, the Chancellor looks to have positioned the UK economy in line with many other developed economies emerging from the pandemic with a focus upon supply side, including labour, investment and improvements.
With inflation and it’s underlying expectations already proving to be less well anchored than we have been accustomed to, the Chancellor faced the unenviable challenge of balancing much needed fiscal support with the risk of driving prices higher still by over spending. The bill for those spending pledges announced over the weekend totals £23.1bn which on the face of it may sound like a lot. However it remains unclear how much of that spending is new capital spending or merely the materialisation of previously allocated spending plans, redeclared. It is not even guaranteed that amongst the theatrics of the Commons this information will be presented on Wednesday leaving markets guessing about the UK’s fiscal stance as we exit the pandemic.
We have spoken previously about how supply side investments, most notably with reference to the infrastructure bill in the US, need not prove to be inflationary if managed responsibly. Markets are most likely to therefore welcome a budget tomorrow that proves to be as generous as the Chancellor had intended it to come across at the weekend with new capital to deploy on supply side upgrades.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Fifty Up
Humphrey Percy
Wed 2 Oct 2024
Fifty Up Exactly 50 years ago today I set out on my career in the City of London. Many of the men whom I worked with wore bowler hats and smoked pipes. Discount House men wore morning dress and top hats. Everyone wore two or three piece suits and black shoes. If you wore brown […]
Daily Brief – Bank of England
Humphrey Percy
Fri 4 Oct 2024
Bank of England In an interview with the Guardian newspaper, Governor Bailey made it clear that Central Banks could afford to cut interest rates more sharply. Markets correctly interpreted that statement as him preparing the way for cuts at pretty much every Bank of England MPC meeting for the next 6 months until they reach […]
Daily Brief – China
Humphrey Percy
Mon 16 Sep 2024
China A snapshot of China today gives more than a strong indication of the likely effect on the rest of the world’s economies. In August, China had record breaking temperatures – the highest for 60 years which was further exacerbated by thunderstorms which affected agriculture sending vegetable prices 22% higher than 1 year before. Despite […]
