Update: after the GBP initially dropped on the lower GDP forecasts, it has since rallied after Hammond finished speaking , in what Citi said was a "relief rally" as there were no "banana skins and government safe. Relief trade here."
This was a risk event – while Budget Announcements are normally quite quiet affairs in FX, the government is so weak that this could have been a banana skin. Fortunately, that was a good budget in political terms, and exactly what May needed. Economically speaking, the downgrade in GDP forecasts will attract some attention, but they were broadly expected, and Hammond’s big spending on the national healthcare and on housing will probably grab the headlines tonight (the rabbit-out-of-the-hat moment was the abolition of stamp duty for first-time home buyers below GBP300k). There were also extra funds for Brexit preparations and a positive tone about the process. May’s government will be thankful, and Chancellor should be safe.
Earlier:
The pound dropped, sliding to session lows, after UK chancellor Philip Hammond revealed a sharp downgrade (more than expected) to Britain’s economic forecasts during the presentation of the UK Budget, underlining the government’s challenge in transforming its political prospects and boosting growth as the country prepares for Brexit.
- U.K. FORECASTS 2017 GDP GROWTH 1.5% (VS 2% in March)
- U.K. FORECASTS 2018 GDP GROWTH 1.4% (VS 1.6% in March)
- U.K. FORECASTS 2019 GDP GROWTH 1.3% (VS 1.7% in March)
- U.K. FORECASTS 2020 GDP GROWTH 1.3% (VS 1.9% in March)
Hammond said that the UK has missed productivity predictions, once again falling disappointingly short. And, somewhat ironically, one of the Hammond’s first comments was to remark that the UK economy is “confounding those who talk it down” and that “those who underestimated the UK, do so at their peril”, suggesting the economy is doing better than its critics said it would be.
As the FT adds, putting a brave face on official forecasts showing weaker growth, lower rises in productivity and worse public finances in the medium term, the chancellor said his Budget would create a “future that would be full of new opportunities”.
Hammond also announced that the UK has set aside an additional 3 billion pounds for Brexit over the next two years for Brexit preparations and stands ready to allocate further sums “if and when needed”. The Chancellor said that the government would make progress on achieving a Brexit implementation agreement “a top priority in the weeks ahead”. The chancellor said he is setting.
Earlier, Downing Street said that foreign secretary Boris Johnson and environment secretary Michael Gove, two key pro-Brexit ministers, were among those who endorsed the Budget. The show of unity came ahead of the chancellor’s announcement of significant downgrades in the economic forecasts from the independent Office for Budget Responsibility.
Some other forecasts:
On the NHS:
- HAMMOND ALLOCATES ADDED GBP10B FOR NHS OVER PARLIAMENT
On minimum wage/benefits:
- HAMMOND: MIN. WAGE TO RISES 4.4% TO GBP7.83 FROM APRIL
- HAMMOND: HIGHER RATE TAX THRESHOLD RISES TO GBP 46,350
- HAMMOND: UNIVERSAL CREDIT MEASURES TO COST GBP1.5 BLN – to address concerns about the delivery of the benefit.
Business rates:
- HAMMOND SAYS WILL BRING FORWARD PLANNED SWITCH FROM #RPI TO #CPI INDEXATION OF #BUSINESS #RATES TO 2018. SAYS WILL SAVE BUSINESSES £2.3 BN OVER 5 YEARS
On Scotland:
- Money coming for Scotland, courtesy of lobbying from Scottish Tory MPs - he's announced refunds on VAT for Scottish emergency services
- HAMMOND: TRANSFERABLE TAX HISTORY FOR N.SEA OIL TO START 2018
On Housing:
- HAMMOND: U.K. COMMITS GBP44 BLN FOR HOUSING OVER 5 YEARS
- HAMMOND: TARGETS 300,000 NEW HOMES/YR ON AVG BY MID-2020S
- HAMMOND: NO STAMP DUTY FOR FIRST-TME BUYERS UP YO GBP300,000 (rabbit-out-of-the-hat)
In immediate reaction to the projection cuts, cable tumbled to session lows, however it has since recovered roughly half of the loss.