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British Pound (GBP) Price Outlook: GBP/USD May Suffer From UK Tax Hike Plan

British Pound (GBP) Price Outlook: GBP/USD May Suffer From UK Tax Hike Plan

Martin Essex, MSTA, Analyst

GBP price, news and analysis:

  • GBP/USD could come under downward pressure after its recent advance as UK Prime Minister Boris Johnson faces a backlash from within his own ruling Conservative Party to plans to increase National Insurance to pay for health and social care.
  • The move would break a Conservative manifesto pledge and bring politics back into play as a factor affecting the Pound, particularly after a report that Johnson plans an October “firebreak” Covid lockdown.
  • However, Bank of England policymaker Michael Saunders has suggested the UK no longer needs as much monetary stimulus as previously, and that could limit the downside.

GBP/USD at risk of weakening

GBP/USD will likely come under downward pressure as UK politics return as a major factor determining its next move.

UK Prime Minister Boris Johnson is expected to hike National Insurance – effectively a tax rise – to pay for health and social care but that would break a manifesto pledge by his Conservative Party and face significant opposition from Conservative Members of Parliament and perhaps even from within his own Cabinet.

Moreover, the Government has drawn up plans for an October “firebreak” Covid lockdown should hospitalisations continue at their current level and threaten to overload the National Health Service, according to the i newspaper.

Against this background it would be no surprise if GBP/USD eased back after reaching its highest level for a month despite some hawkish comments early Tuesday from Bank of England policymaker Michael Saunders, who suggested the UK no longer needs as much monetary stimulus as previously.

GBP/USD Price Chart, Two-Hour Timeframe (May 10 – September 7, 2021)

Latest GBP/USD price chart.

Source: IG (You can click on it for a larger image)

As for the technical picture, GBP/USD has broken above a resistance line marking the top of a downward-sloping channel it has traded in since mid-May. That trendline should now act as support but the pair is already challenging it and the latest move could prove to be a false break higher.

--- Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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