Forex

British pound slides on lower OBR forecasts, before recovering post speech

The British pound slumped during UK Chancellor of the Exchequer Philip Hammonds first Budget announcement Wednesday. Investors were disappointed by the lower economic forecast calculated by the Office for Budget Responsibility and unveiled by the Chancellor.

However, shortly after the Chancellor sat down, US new orders data were realeased which disappointed investors, likely giving renewed support for the pound. The US Census bureau reported a 1.2% drop in new orders in October.

By 1410 BST, the British pound was changing hands at $1.3267, a little higher than it had been ahead of the Budget. It hit a low point of $1.3216 during Hammond’s address.

OBR cuts UK economic outlook

The OBR’s latest forecasts for UK Gross Domestic Product growth are:

  • 2017 +1.5%
  • 2018 +1.4%
  • 2019 +1.3%
  • 2020 +1.3%
  • 2021 +1.5%
  • 2022 +1.6%

The main drivers of the slower pace of anticipated economic expansion are slower consumption and business investment, according to the OBR. Those two specific areas are likely expected to be victims of the ongoing Brexit negotiations process.

“The UK economy has slowed this year as households’ real incomes and spending have been squeezed by higher inflation,” the OBR said in its full economic forecast document.

“We have revised down our productivity and GDP forecasts and, despite lower borrowing this year, revised up our forecast for the budget deficit,” the independent body said on the front page of its website.

Other budget details

While the lower economic forecasts were disappointing, albeit expected, other details of the Budget were also of interest to investors.

The Chancellor announced he was scrapping stamp duty charges for first time buyers of properties worth under £300,000.

Meanwhile, an additional £3 billion has been earmarked for the Brexit transition. Hammond has also found an extra £2.8 billion for the NHS.

And, due to expected lower tax returns, Government borrowing is set to rise by more than previously calculated.

Avatar Ilona-Billington
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