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Pound Sterling GBP Outlook Improves Following Chancellor?s Autumn Statement

November 25, 2015 - Written by Ben Hughes

Foreign Exchange ALERT: Pound Sterling Rebounds on Budget News



The Pound Sterling (currency : GBP) was expected by analysts to have a tough ride during this afternoon’s session. The latest Spending Review and Autumn Statement from the UK Chancellor of the Exchequer George Osborne, delivered from 1230hrs GMT, was supposed to be one long, downbeat warning of tough economic times ahead, accompanied by a downgrading of Britain’s GDP growth forecasts.

However, the set-piece speech from the UK’s finance minister proved to be anything but harmful to the Pound – the immediate response from investors saw the Pound Sterling euro exchange rate (GBP EUR) break back above the 1.4250 threshold, having languished in the 1.4100s in the early part of the session.

Osborne Scraps Cuts to Tax Credits



Economists had been expecting the Chancellor’s speech to confirm widespread and extended austerity measures, but the main headline grabber proved to be a complete scrapping of his controversial £4.4bn tax credit cuts, announced earlier this parliament. Osborne explained –

‘I’ve had representations that these changes to tax credits should be phased in. I’ve listened to the concerns. I hear and understand them. And because I’ve been able to announce today an improvement in the public finances, the simplest thing to do is not to phase these changes in, but to avoid them altogether. Tax credits are being phased out anyway as we introduce universal credit. What that means is that the tax credit taper rate and thresholds remain unchanged.’


UK Economic Forecast Improves, GBP to EUR, USD Exchange Rate Strengthens



The move is considered likely to give the UK economy a boost by putting additional disposable income into the pockets of people with the highest marginal propensity to consume. Market participants liked what they heard and voted with their feet in favour of the Pound.

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Pound Sterling Outlook Predicted to be Neutral-Positive



The Chancellor’s public finance predictions also pleased the market – Osborne used today’s statement to announce forecasts that the domestic deficit will stand at 3.9% of the UK’s GDP this year, before falling to 1.2% and 0.2% in 2016/17 and 2017/18 respectively. Surpluses of 0.5% and 0.6% are anticipated in the next two financial years. The outlook for the Pound Sterling against the other sixteen most-actively traded global currencies is now NEUTRAL TO POSITIVE.
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