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Historic UK Borrowing Surplus Pushes Up GBP NZD Exchange Rate

August 22, 2017 - Written by Ben Hughes

The Pound’s minor advance against the New Zealand Dollar comes despite heavy scepticism about the UK borrowing surplus.

GBP NZD Exchange Rate Rises despite Mixed Reception to UK Borrowing Stats



The Pound has made a minor advance against the New Zealand Dollar today, following the news that the UK borrowing deficit has moved into a surplus range in July.

This is the first surplus recorded since 2002, but the reception has been more muted than might be expected.

Crucially, traders are focusing on the surplus largely being the result of higher tax revenues, caused by a changes in tax laws. Highlighting the future issues associated with UK tax revenues and borrowing has been Samuel Tombs of Pantheon Macroeconomics.

Tombs has warned that this recent surge in tax receipts could be a temporary source of support for the UK;

‘Growth in receipts will slow sharply at the end of this fiscal year, because the bumper batch of seasonally adjusted receipts collected in January and February 2017, due to prior tax changes, will not be repeated.

The Office for Budget Responsibility (OBR) also likely will revise down its very optimistic forecasts for wage growth in the Autumn Budget, boosting the borrowing forecast in future years. As such, we continue to doubt that the Chancellor will pare back the fiscal consolidation planned for the coming years’.


This suggests that the UK could return to an extended period of borrowing deficits in the future, which may prove a drag on the GBP NZD exchange rate.

On the other side of the equation, EY Item Club economist Howard Archer has argued that this makes Chancellor Philip Hammond’s job easier;

‘[This is] a welcome summer break for the Chancellor…specifically, there was a marginal repayment of £184m on public sector net borrowing excluding public sector banks in July. This compared to a shortfall of £308m in July 2016.

June’s shortfall was also revised down to £6.2bn from a previously reported £6.9bn. Even so, June’s shortfall was up markedly from £4.8bn a year earlier - partly due to a major payment to the EU budget as well as higher debt interest payments.

Completing a hat-trick of good news, the 2016/17 budget shortfall was trimmed again to £45.1bn from £46.2bn’.


New Zealand Dollar Declines on Stronger US Dollar, Trader Concerns



Today’s New Zealand Dollar to Pound dip has been relatively minor and comes on a quiet data day.

The last direct data to speak of was mixed, with Monday’s credit card spending rising on the month in July but falling annually. Overall, this was the fifth straight month of higher spending, which implies a moderate level of confidence among citizens.

The stronger negative influence may instead be trader uncertainty about an upcoming trade balance figure. Covering July, this could show that national trading has fallen into a deficit range for the first time in five months.

As well as possible domestic disappointment weakening the New Zealand Dollar today, the currency has also been devalued by a stronger US Dollar.

With the US Dollar rallying strongly today, the more risk-associated New Zealand Dollar has been in lower demand by extension.

GBP NZD Future Forecast: Volatility ahead on NZ Trade Data and UK GDP



The next major pairing data will come from New Zealand, ahead of later UK GDP stats on Thursday.

Wednesday’s late-night NZ news will cover July’s reported trade balance. On the month, the previous surplus of 242m is predicted to fall into a deficit at -200m. Such a result would break four consecutive months of surplus figures and could devalue the New Zealand Dollar.

A deficit figure indicates that the country is importing more than it is exporting. In New Zealand’s case, this would imply an unbalancing of key trade relationships with countries such as China.

Pound traders are primed for the week’s last collection of UK data, out on Thursday. Out at the same time will be figures for Q2 business investment, as well as GDP growth in the same month.

Business investment is tipped to slow on both the quarter and the year, while the Pound could also be damaged if annual GDP growth slows.

While quarterly GDP is predicted to rise from 0.2% to 0.3%, an annual slowdown from 2% to 1.7% might prove to be the more overriding factor.
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