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Jeremy Hunt will deliver the budget on 6th March with minimal breathing room. Editorial credit: ITS via Shutterstock
Ready your red briefcases – the budget is nearly here! Jeremy Hunt will unveil the UK’s spending priorities for the year ahead on Wednesday 6th March, and we’ll be here to bring you all the news as it arrives.
It’s still two weeks away, but the budget could be a crucial moment. The conservatives are thought to be looking for ways to cut taxes ahead of the election. However, their space to do so is slim. With the Tories well behind Labour in the polls, it’s fair to say that the pressure is on.
We’ve seen in the past that currency markets can move in a big way around budgets. So, what will this budget mean for your business? This blog gives you the lowdown.
How much room?
The UK recorded a record budget surplus of almost £17bn in January. Good news, right? Well, that was actually lower than expected (as many readers will know, January is the season of self-assessment payments) and means that Hunt will still have a few headaches as he makes his plans.
Part of the reason for the surplus also has to do with falling inflation, which means the government has paid less in interest on its debt obligations. Plus, the end of the energy support scheme has written off a huge chunk of previous spending.
The problem is that tax cuts are extremely expensive. Any significant reductions may need to be fuelled by an increase in public borrowing. In that scenario, currency markets may well balk at the prospect of debt rising without investment increasing. It’s a precarious situation, and Hunt has to strike the right balance between fiscal restraint and popular tax giveaways.
A rocky road
All this means that the budget represents a tangible risk to your budget. Currency fluctuations around the time of the budget are all but assured, particularly as modern governments tend to drip feed key information to friendly publications ahead of the big day.
If the media gets wind of a big announcement, let’s say a cut to income tax, currency markets will react and the value of the pound will change relative to its major currency pairings.
You only have to look back a couple of years to see the risk of government budgets. The pound sank to a record low of $1.03 against the US dollar after the 2022 mini budget. This was largely fuelled by the promise of billions of pounds in unfunded tax cuts.
Hunt will no doubt want to avoid that ignominy. 11 Downing Street will be a hive of activity between now and 6th March as the chancellor dots the I’s and crosses the T’s. Media scrutiny will be intense, and it’s a very narrow path indeed for Hunt to make his party seem electable while delivering a fiscally responsible budget.
Sterling will undoubtedly rise and fall between then, so don’t take the risk. Lock in a forward contract today and take the risk out of your next transaction.
To learn more about how Smart Currency Business can help you, give one of our friendly account managers a call on 020 3773 7402 or visit our website for more information.
