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UK Budget: GBP Steady but OBR Growth Downgrades will Weigh

UK Budget: GBP Steady but OBR Growth Downgrades will Weigh

Nick Cawley, Senior Strategist

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Talking Points

- GBP may come under pressure as official UK growth figures are revised lower.

- UK Chancellor Philip Howard promised extra funding included an extra £3 billion for Brexit preparations.

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The Autumn Budget provided a raft of small giveaways to tackle housing, inequality and low pay, but for the markets the latest official growth projections from the OBR made slightly uncomfortable reading. According to the OBR, real UK GDP growth is expected to slow from 1.5% (2.0%) this year to 1.4% (1.6%) in 2018 and 1.3% (1.7%) in 2019 - March 2017 forecasts in brackets - “as public spending cuts intensify and Brexit-related uncertainty continues to bear down on activity.” This downgrade reflects the ongoing Brexit uncertainty and the effect of GBP weakness post-referendum.

“As expected, real GDP growth has slowed noticeably this year. The fall in the pound that followed the EU referendum has pushed up consumer price inflation and squeezed households’ real incomes and spending. But the slowdown started slightly earlier than we expected in March (the last forecasts).”

Sterling fell, then picked back-up to end unchanged post-Budget but markets will now start pricing in lower productivity and with Brexit uncertainty still holding sway, GBP may find it difficult to push further ahead.

Chancellor Hammond recognised this uncertainty in his speech, pledging £3 billion towards Brexit preparations on top of the GBP700 million already spent.

Sterling may get an uplift in the next few days with UK PM Theresa May scheduled to meet EU officials at the end of the week. If, as has been widely reported , the UK increases its divorce bill offer, then the EU may allow talks to move to the second phase and the all-important post-Brexit trade agreements.

Chart: GBPUSD 30 Minute Timeframe (November 21 - 22, 2017)

Chart by IG

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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