The British pound rose on Monday amidst broad US dollar weakness and the announcement of a fiscal stimulus plan for the UK.
The British pound rose on Monday amidst broad US dollar weakness and the announcement of a fiscal stimulus plan for the UK. Chancellor of the Exchequer Alistair Darling said in his pre-budget report that the UK budget deficit will surge to £78 billion this year and to £118 billion in 2009-10 as the government cuts the Value Added Tax (VAT) to 15 percent from 17.5 percent, boosts state pensions and child benefits, extends employment support at a cost of £1.3 billion and provides a housing support package worth £1.8billion. This only covers a small portion of the government’s plans (check out the UK Treasury’s website for complete details), and in order to accommodate for some of these costs, Chancellor Darling said that after April 2011 those earning at least £150,000 a year would face an income tax of 45 percent. Meanwhile, Chancellor Darling also downgraded growth forecasts to 0.75 percent in 2008, between -0.75 and -1.25 percent in 2009, and between 1.5 to 2 percent in 2010. Looking ahead to the next 24 hours, the preliminary release of UK business investment is forecasted to fall negative for the third consecutive quarter during Q3 at a rate of -1.9 percent. However, this doesn’t tend to be a major market-mover, leaving US dollar trends and technicals the primary drivers of the forex markets.
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