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The UK government will deliver its highly-anticipated budget today. Editorial credit: Sean Calderback via Shutterstock
Budget Day Eve saw gains of around half a cent for the pound against the euro and the US dollar. EUR/USD picked up by around 0.25% but it was a largely sleepy day for that currency pairing.
After all the talk, Jeremy Hunt will step out from No. 11 Downing Street this morning brandishing his little red briefcase. Multiple news outlets splashed yesterday on the story that he planned to cut national insurance contributions by 2p and freeze fuel duty. That would cost an estimated £10bn and save the average worker £450 a year, according to government calculations, while eroding almost all of Hunt’s fiscal headroom.
Those were just reports, of course, but the government does have a habit of drip-feeding information to the press in the days before the announcement. Whether that’s an effort to head off any Liz Truss-style volatility is open to interpretation. What it does highlight is a desire to boost the economy (and put money back into workers’ pockets) without being inflationary, something that would not have been achieved with a cut to income tax. However, cutting national insurance is typically seen as a less politically potent option.
Quote of the day undoubtedly went to Sarah Coles, head of personal finance at Hargreaves Lansdowne. These changes “wouldn’t be so much a rabbit pulled out of a hat as a slightly tatty-looking ferret dragged from a box, labelled ‘rabbit’”, she quipped.
Of course, as tempting as it is to focus on proceedings in Whitehall, the budget isn’t the only thing happening this week. February’s final S&P Global Services PMI for the UK was revised down to 53.8 from an initial 54.3, although optimism for future growth is at its highest in two years.
The US ISM Services PMI fell to 52.6 in February from January’s four-month high of 53.4. The index came in below expectations despite new orders rising and price pressures falling away. However, concerns remain about inflation and geopolitical developments.
The price of gold and bitcoin both reached a record high yesterday. Gold is typically seen as a risk averse holding, while Bitcoin is much more of a cavalier bet. It’s a bit of a Jekyll and Hyde moment for them to both rise on the same day and goes to show you can’t really trust markets all too much.
Our latest Quarterly Forecast previewed a huge year of elections. While most people believe a general election won’t be held until later this year, Labour frontbencher Jonathan Ashworth yesterday placed a £10 bet that the Conservatives would hold an election in May. That might not be too much to read into as Labour looks to put the squeeze on, but the prospect of an election is a reminder of just how much can influence currency markets, and thus your budget.
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GBP: PMI revised but services look strong
As a services-heavy economy, it was a blow to the UK to have its final read for the S&P Global PMI survey revised down. Looking at the bigger picture though, sentiment has improved to its highest level in two years, while the index is still perched far higher than its continental equivalent.
GBP/USD: the past year
EUR: An unflattering (but improving) comparison
Let’s have a look at Europe while we’re discussing PMI indexes. In the slightly different Hamburg Commercial Bank (HCOB) studies, German services and composite PMI are still languishing in negative territory, while the combined eurozone PMI read creeped above 50 to register the first month of growth for seven months in February.
GBP/EUR: the past year
USD: Powell headlines busy day
Today is one of those manic days that sometimes roll into currency markets like sea storms. Federal Reserve chair Jerome Powell is due to speak soon after the UK budget, while JOLTs job openings conclude proceedings.
USD/EUR: the past year
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