020 7898 0500
Rachel Reeves at last year's Budget (Sean Aidan Calderbank/Shutterstock)
It’s been hard to keep up with the twists and turns of sterling over the past 24 hours. Yesterday was a game of two halves as the markets changed their mind around midday, and after early falls the pound strengthened. Then overnight it’s been a change of direction again, as the news came through that the chancellor has ditched her plans to raise income tax.
Yesterday’s early disappointment stemmed from the fall in the size of the UK economy in September. Gross domestic product (GDP) fell by 0.1%, taking the quarterly figure down to 0.2% growth. This could largely be blamed on a cyberattack on Jaguar Landrover that cost the UK economy some £2bn, but was another blow to the chancellor, with some analysts and opposition blaming the faltering economy on mistakes in her first Budget.
This morning’s news that the chancellor is changing tack on the Budget in 12 days appears to be a response to mutinous Labour MPs. The thinking may be that if she feels the need to resign having broken a clear manifesto promise, the prime minister might have to go too. Now, according to the Financial Times, the fiscal ‘black hole’ will be filled via fiscal drag (i.e. not raising tax thresholds) and a smorgasbord of taxes on gambling, expensive properties and others.
On GDP, the thinktank the Resolution Foundation pointed out that the quarterly 0.2% growth still left it the second-fastest growing economy in the G7. Another drag on the UK economy was falling exports to the USA, which were at their lowest since 2022 due to the effect of tariffs.
The British housing market continues to suffer, with the RICS UK Residential Market Survey showing an increasing number of chartered surveyors noting house price falls. This is most notable in London and South East, where the impact of a likely new taxes on expensive properties will also be most felt.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Account manager on 020 3918 7255 to get started.
GBP: No respite for sterling
The bad news continues to pile on for sterling, with GBP/EUR down to another fresh low since spring 2023. There was at least a recovery against some other currencies, notably the US and Australian dollars. The data ramps up again next week with inflation on Wednesday.
GBP/EUR past year
EUR: Strong day for euro
The euro benefitted from the reopening of America’s Federal government, with a 0.4% gain on USD yesterday. We are about to get final results for inflation, as well as a second estimate for GDP in the eurozone – has it done any better than Britain?
EUR/USD past year
USD: Dollar in retreat as markets react to shutdown end
The US dollar could only muster any growth against the Aussie dollar yesterday, slipping around 0.5% against most pairs. We’ll be getting a mass of data tomorrow as the shutdown ends, including retail sales.
USD/GBP past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 3918 7255 or your Private Client account manager on 020 7898 0541.
