‘End of austerity’ fails to lift sterling out of Brexit slump as Hammond sets aside £2bn for hard Brexit
Philip Hammond’s Budget announcements failed to lift sterling, which continued to slide this afternoon as the chancellor announced the government’s spending plans to the House of Commons.
With the Office for Budget Responsibility (OBR) lifting its growth forecast from 1.3 per cent to 1.6 per cent for 2019, and predicting a lower deficit of just 1.4 per cent in 2019, Hammond announced the “end of austerity”.
Part of that will see the chancellor extend the personal tax allowance to £12,500 a year early in April 2019, when he will also raise the higher tax rate to £50,000 12 months sooner than planned.
However, he also upped the amount he would set aside in case of a hard Brexit, from £1.5bn up to £2bn.
The pound fell from 1.284 against the dollar shortly before the chancellor’s speech to as low as 1.279 just before the end of chancellor’s speech, before recovering to 1.280.
Analysts suggested that Brexit is the major motivator behind any movements of the pound, rather than any individual policies.
“Over a longer time frame, the changes support the case for a big sterling rally in 2019 – if a no-deal Brexit can be avoided,” said Ranko Berich, head of market analysis at foreign exchange firm Monex Europe.
“The political cost of opposing any EU deal May manages to strike has also been increased for Tory rebels, given the current spending boost will indeed look untenable in a no deal scenario.”
Saying the pound remains in a “precarious position”, Berich claimed that further negotiations between the UK and EU will be crucial in propping up or sending down the pound.
Fawad Razaqzada, market analyst at Forex.com, agreed, calling the Budget a “damp squib” for sterling.
“Clearly, the market remains focused on other bigger issues, namely Brexit and the issue of Northern Ireland stalemate as the exit deadline approaches,” he added.