The Pound Sterling to Euro (GBP/EUR) exchange rate was influenced heavily by yesterday’s 2016 UK Budget delivered to Parliament, as Chancellor of the Exchequer George Osborne announced considerable cuts to Britain’s GDP expectations.
Storms Gather over UK Economy as George Osborne Cuts Growth Estimates
The already weak Pound plummeted across the board yesterday after a bearish 2016 Budget delivery from Chancellor of the Exchequer George Osborne. In the aftermath of the Budget announcement the GBP/EUR pair is still trending lower, currently around -0.2% down on this morning’s levels of 1.2712.
Osborne’s eighth budget was discussed in Parliament yesterday where he announced, as some analysts expected, a grand series of cuts and other dovish remarks. In perhaps the most vital economic news of the day, Gross Domestic Production (GDP) estimates for 2016 were lowered from 2.4% to just 2%, quite a considerable drop. Upcoming years’ forecasts were also cut, with 2017’s 2.5% being cut to 2.2% and 2018 through 2020 all dropping to 2.1%.
This disappointing change has been caused by what Osborne has regularly referred to as ‘storms’ gathering in the economic world. He defends his decision by asserting that Britain’s growth was still impressive in comparison to other countries, but this was unable to inspire investors to stick with GBP.
Impressive UK employment data from yesterday morning was unfortunately not able to offset investor disappointment or even inspire any strength into the weakened Pound. It was confirmed yesterday morning that the key unemployment rate remained at its record-low 5.1%.
It was also reported that around 116,000 new jobs had been created and that wage growth had grown from 1.9% to 2.1%, beating already optimistic forecasts.
Sugar Tax Announcement Jostles Mainstream Media but Investors Unimpressed After Cuts
In what some economists called Osborne’s budget ‘surprise’, plans to place new taxation on sugary drinks were announced towards the end of yesterday’s session. Similarly to biscuits, many popular sugary drinks like cola will be taxed in Britain, with the plan going forward sometime in 2018.
Osborne expects that £530 million will be made from this taxation, which he claims will be used to fund greater sports facilities in primary schools. Celebrity chef and health activist Jamie Oliver was particularly excited about the news, dancing and exclaiming ‘we did it!!!’ over the action he had been campaigning to put in effect for years.
This excitedly optimistic reaction from the celeb chef alongside other media reactions is speculated by some analysts to have been intentional, as a way to distract the general public from the darker side of the ‘storm’.
Osborne’s deficit targets have still not been met, though he promises ‘surplus’ by 2020. Austerity measures were also expanded even further with over £1.2billion worth of cuts to disability benefits being made by 2018.
Some small announcements are thought to have made opposition leader Jeremy Corbyn quite happy, as Osborne mentioned vaguely that improvements would be made to climate change and homelessness situations.
Previous attempts by the European Central Bank (ECB) to weaken the Euro were unable to keep the Pound from plummeting against it and higher than expected CPI data released this morning seems likely to work in the favour of continued shared currency strength.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: Bank of England (BoE) Announcements Likely to Influence Sterling Further
With the Euro unlikely to weaken again for the remainder of the week, any hope of instilling strength into the continuously weakening Pound falls on today’s Bank of England (BoE) interest rate decision and asset purchase target announcements.
Sterling seems likely to fall further from yesterday’s bearish budget and today’s positive Eurozone CPI as the pair heads back towards its lowest point since late-February. Analysts expect that the BoE will keep the key interest rate at its current 0.50% but are also expecting a generally dovish tone from the central bank.
This seems especially likely after the numerous growth and austerity cuts made at yesterday’s budget, with some analysts expecting the BoE to foreshadow the possibility of an interest rate cut sometime in the future. Further weakness in GBP could send the Pound to Euro exchange rate to a fresh over one-year low.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2677 while the Euro to Pound Sterling (EUR/GBP) exchange rate trends in the region of 0.7887.
