The Budget for Britain’s Future

30 October, 2018

Rob Bastin

Yesterday’s trading was a very typical day for the end of the month with an absence of any key data to drive the markets. Sterling slipped slightly lower against both the Euro and US Dollar as both the trend and negative sentiment continued to weigh on the pound. Now that any optimism of an imminent Brexit deal has faded, Sterling exchange rates are fast approaching the year lows seen back in August, with currently very little to stand in its way from hitting these levels again.

The morning kicked off with some minor data releases, UK mortgage approvals came in just over 65k as expected and slightly down from Augusts figure, and Consumer Credit came in at just £0.785 billion, a sharp drop from £1.21 billion the month before. Most eyes, however, were awaiting the 2018 budget from Philip Hammond later in the afternoon. The budget does not have a history of impacting currency markets, and this was much the same throughout yesterday’s delivery. The budget did, however, generate a little more interest because of its timing within the current Brexit negotiations and so here are some of the highlights worth noting:

  • 2018 growth forecasts upgraded from 1.3% to 1.6% after faster than expected growth in the first 2 quarters.
  • UK growth remains the slowest of any country in the G7
  • Austerity is ‘coming to an end’, not ‘over’ as Theresa May had previously indicated
  • Extra £500m made available for preparations of leaving the EU and Spring budget in March could be a full budget if needed.
  • Fuel duties frozen, further help for first-time buyers, new digital services taxes, and more money for armed forces, schools and road repairs.

At the end of the day, the budget details will fall back into a relative insignificance at such a significant time for the country. Markets will remain solely focussed on Brexit developments which are unlikely to come anytime soon with the next EU summit not until December, and both sides seemingly working harder for an agreed extension by this meeting rather than an actual deal. This prolonged uncertainty is likely to keep investors and traders away from Sterling for the time being, and so opportunities to buy at better levels could prove to be few and far between in the next couple of months.

Today we have Euro-zone growth figures at 10 am with a drop from annual 2.1% to 1.8% forecast by analysts. For the UK the next release of note will be a big one on Thursday, kicking off the new month with a Bank of England rate decision. With no policy changes expected, Mark Carney could well express his concerns over a delayed Brexit agreement and the restrictive impact this has on the BoE and their ability to adjust policy as required, leaving little room for any positive surprises in this meeting.