The Autumn Statement is scheduled for 17th November, and will see Jeremy Hunt, the Chancellor outline fiscal policy for the new Rishi Sunak administration. The pound can be very sensitive to changes in government policy on tax and spending, particularly given the UK’s current precarious financial position.
We might not expect quite the same fireworks as saw following the last fiscal event in September and early October, with Kwasi Kwarteng and Liz Truss, but that episode highlights the potential volatility we can see from changes to policy.
Jeremy Hunt is predicted to be looking to better balance the books of government. The UK essentially pays more in outgoings, than it makes in incoming tax receipts. This is known as a budget deficit, and this means the government has to borrow extra money to fund the shortfall.
In becoming more sensible over the shortfall, it can be argued that this would potentially be supportive of sterling, although the measures necessary are unlikely to be pleasant in many respects.
This is because, cutting spending, or increasing taxation, which are two of the levers Mr Hunt can play with to balance the books, are potentially damaging to growth. If the government spends less, and taxes us more, it can be harmful to growth, which can result in worsening a bad situation.
If the UK enters recession as some predict, and that is made worse by the government cutting spending and raising taxes, you can argue that would be sterling negative.
Financial markets have been quite jittery in recent weeks when it comes to the pound, as investors have to weigh up many different choices. Rising interest rates, rising inflation, falling economic growth and a lack of reliable political leadership in recent months have all contributed to volatility.
The net move has really been downward since the summer, although we have seen the pound comfortably recovering against most currencies following the sharp rout of weakness a few weeks ago.
The coming Autumn Statement is going to attract a lot of attention, and it will be most interesting to see how the market views the points. If you are considering a currency exchange, and wish to learn more regarding the pound and what lies ahead, you can contact us to learn more and provide further insight.
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