The GBP EUR exchange rate was lower by -0.37% on Wednesday after UK Chancellor Rishi Sunak unveiled his Autumn budget. higher by 0.28% on Tuesday with the pair touching the 1.1900 level. A recent slowdown in the European economy is seeing rate hike bets in the pound sterling. The UK will also see the Autumn budget delivered by Rishi Sunak today. UK virus cases have bene predicted to fall in coming weeks and that has also supported the pair.
The GBP to EUR was trading at 1.826 but the drop today could signal that yesterday’s 1.1900 test was the near-term high.
Sunak budget disappoints pound sterling traders
The Chancellor unveiled his latest Autumn budget today and pound sterling traders pulled the currency back from its new yearly highs.
Rishi Sunak entered today’s budget with lower-than-expected public borrowing figures last week and the OBR has upgraded UK growth to 6.5% this year. It was also said that the damage to the economy is now 2% from pre-virus highs.
Traders are concerned that Sunak went a bit far in splashing the cash around. Infrastructure spending from the “levelling up fund” money for local government, help for science and development, reduced air passenger duty on domestic flights, home building injections– the list was long.
Some are also worried that the Chancellor didn’t address the two key problems enough: Labour shortages and inflation.
Sunak said: “These are shared global problems, neither unique to the UK nor possible for us to address on our own.”
Ian Wright, chief executive of the Food and Drink Federation said of inflation:
“In hospitality, which is a precursor of retail, inflation is currently running somewhere between 14 per cent and 18 per cent,” Wright told the committee. “I was at university in 1977. I remember inflation going to 27 per cent under the Callaghan Government, and I remember the lady going around in Sainsbury’s with stickers twice in the same hour to change the prices again and again. We really cannot go back to that. It is terrifying for us.”
Sunak has rolled out the red carpet to boost spending in different sectors, but there are bigger threats and raising minimum wage or reversing a wage freeze when inflation is heading for 5% is not going to change structural problems.
Will the Bank of England really hike interest rates?
The attention will now turn to today’s European Central Bank meeting, but the likelihood of the ECB becoming hawkish is slim. However, in light of recent energy price problems and rising inflation in the likes of Germany and France, they may change tack slightly.
That would take further wind out of the pound sterling’s sail but next week sees the BoE rate hike meeting and traders may be getting ahead of themselves there. The markets have all but priced in a November rate hike, but last week’s inflation rate dipped by 0.1% from expectations and the signal that rate hikes are coming will maybe enough for the BoE in 2021.
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