The pound to euro is 0.16% higher on Wednesday at the end of the morning session as the market awaits the latest budget Rishi Sunak. Data this morning showed UK services activity stabilizing from a recent downturn as optimism builds over an end to the lockdowns builds.
GBPEUR is trading near 1.1566 after consolidating from last week’s gains on the reopening plan. Rishi Sunak has now the task of convincing markets that the country can bounce back from the past year with a plan that keeps spending contained.
What to Expect From the Budget 2021
Chancellor Rishi Sunak is set to release his second budget in what will be the one of the most challenging of any finance minister. Government spending is set to hit £400 billion for the fiscal year and Mr Sunak will have to find a way to keep that spending in check, while also sparking a strong 2021 for the country. These are some of the expected changes:
Corporate Tax, Capital Gains, Inheritance and Business Rates
The headline act from Mr Sunak could be a stiff rise in corporation tax with reports that he would raise the rate from 19% to 25%. This would remove some of the country’s advantage to attract businesses and could be a big weight on the GBPEUR. The Chancellor did not confirm this move yesterday but said:
“I’m not sure that’s something that will necessarily happen… clearly businesses have been supported a great deal and so there’s an argument that says maybe in the future they can be expected to support/contribute to the tax revenue.”
There is potential that the Chancellor slows the speed of this rise and this could boost the pound sterling. Other potential taxes could be seen in capital gains and tweaks to pensions and inheritance for the wealthy.
Vat cuts are set to be extended for the hospitality sector and this is expected to be extended into the pub trade that was blocked by EU red tape, beer and fuel duty will be frozen.
Mortgages and Households
The budget will also announce a new mortgage scheme making it easier to get a 95% loan. Small-deposit deals have dried up during the pandemic, but there will be opportunities to buy a home under a new scheme that is based on the “Help to Buy” scheme that previously ran until 2013.
Employment and Jobs Programs
The headline for jobs is the extension of the furlough scheme to October 2021, while over 500,000 will be allowed access to the self-employment help schemes, after missing the 2019 trading deadline last time.
The Chancellor will also confirm a fourth self-employed grant of up to £7,500 with another one to be added over the summer. Support to increase apprenticeships and traineeships will also be announced. The country has seen unemployment rise to 5% despite the furlough, while youth unemployment is at 14.5%.
The GBPEUR has rallied this year as investors reacted to the UK’s fast vaccine rollout. The Prime Minister has set a reopening path and the Chancellor must support that with growth-inducing actions or sterling could suffer.
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