Jeremy Hunt and the Autumn Statement Sink the Pound
It was a big afternoon for the GBP/USD, with Jeremy Hunt’s Autumn Statement drawing market interest.
The UK Chancellor of the Exchequer failed to fill the cracks, with the OBR delivering gloomy growth forecasts off the back of the Chancellor’s budget.
Jeremy Hunt opened his Autumn Statement to Parliament by saying Britain is now in recession. Hunt’s opening comments and gloomy OBR growth forecasts weighed heavily on the GBP/USD.
Considering the Autumn Statement, the OBR forecasts the UK economy to slow by 1.4% in 2023 before rising by 1.3% in 2024. In March, the OBR projected economic growth of 1.8% in 2023.
The OBR also projects real household disposable income to fall by 3.1% in 2022 and 3.4% in 2023, another negative for the UK economy.
However, the markets showed little interest in large portions of the Autumn statement.
According to the Chancellor, the OBR sees the Autumn Budget statement easing pressure on the Bank of England to raise rates. The Chancellor expects pressure on mortgage rates to soften, supporting disposable income.
Other notable points from the Autumn Statement included,
- Lowering the threshold for the top income tax bracket from £150,000 to £125,000, pushing an additional 250,000 into the top tax bracket.
- Energy Windfall Tax will increase from 25% to 35% from January 1 until March 2028, raising £14 billion.
- Maintain defense spending at a minimum of 2% of GDP.
- Public spending to grow but at a slower pace than the economy.
- Council tax increases.
- Protect pension triple lock, with state pensions to increase with inflation.
- No cuts in capital budgets.
- Minimum wage to increase by 9.7%.
- Investment in infrastructure, an increase in investment in schools, and more for the NHS.
Reaction to the Autumn Statement Raises Red Flags for the UK Economy
At the time of writing, the GBP/USD was down 1.00% to $1.17959.
Before the Autumn Statement, the GBP/USD rose to an early high of $1.19581. However, market reaction to the Autumn Statement sent the Pound to a low of $1.17845.
While the Pound responded negatively to the Statement, the market can take comfort in knowing that the Government will work hand-in-hand with the Bank of England to bring inflation to target.
However, whether the Autumn Statement takes the first steps in reuniting the Tory Party remains to be seen.