GBP AUD Slumps on UK Borrowing Figures

GBP AUD Moves Lower After UK Inflation Report

The Pound to Australian Dollar exchange rate was -0.60% lower higher on Tuesday after the release of UK government borrowing figures. The UK government borrowed more than expected in March and overshot its own target by almost 20%, according to figures published by the Office of National Statistics (ONS).

The GBP to AUD was trading at 1.7630 ahead of the latest Australian inflation figures.

UK borrowing halves, but still near record highs in March

The UK government borrowed more than expected in March and overshot its own watchdog’s target by around 20%, according to the Office of National Statistics (ONS).

In March public sector borrowing was £18.1bn, which is the second-highest March figure since 1993, but £8.8 billion less than March 2021. Last month, the Office for Budget Responsibility said it expected borrowing in 2021/22 to be £127.8bn, around 20% less.

The ONS said this was the third-highest borrowing for a financial year since records began in 1947, but less than half of the £317.6bn borrowed in the same period last year, due to the pandemic.

Higher than expected borrowing was driven by a jump in interest payments. Interest payments rose by 52.8% to £2.9bn last month as soaring inflation pushed up costs.

Chancellor Rishi Sunak said: “Public debt is at the highest levels since the 1960s and rising inflation is pushing up our debt interest costs, which means we must manage public finances sustainably to avoid saddling future generations with further debt.”

“Despite global economic headwinds, we continue to meet our fiscal rules, showing our commitment to keeping the public finances sustainable while supporting the UK’s long-term growth and addressing the immediate pressures facing people with their cost of living.”

Higher Australian inflation could mean super-sized rate hike

The market awaits the latest official inflation figures which are expected to be the highest since the global financial crisis for Australia. One leading economist has warned it could trigger a large interest rate hike from the Reserve Bank.

Westpac is forecasting a 2 per cent jump in consumer prices over the recent quarter and a 4.9 per cent surge over the year.

“The biggest contributor is the cost of building a house, which of course includes building construction materials, construction wages, and the margins that developers are able to get,” the bank’s chief economist Bill Evans said.

If inflation comes in close to its forecast, and unemployment falls down to 3.8 per cent as Westpac expects, the Reserve Bank’s first move could be an unusually large one.

“There is considerable speculation that they’ll move on the 3rd of May, but I think that’s really been ruled out by the guidance that we’ve seen from the Reserve Bank about wanting to see data over the coming months,” Mr Evans said.

“We did expect that they’d only go by 0.15 but now, with this much stronger inflation environment, much stronger labour market, I think the need is there to go faster than that.

“So, a first move of 0.4 and then settle back into 0.25 moves in most of the months between now and the end of the year.”