As the Chancellor announces the minting of a new one pound coin the most important thing people living in the UK will be asking, “that’s all very well, but what will it do for the pound in my pocket”. The overall theme of this year’s Budget was one of cautious optimism and the word “resilient” featured regularly.
To start, the Office of Budget Responsibility’s growth forecasts were upgraded and have now come more in line with the Bank of England’s, however they remain well below and more sceptical than many other forecasters. It’s interesting how dovish the independent OBR is when compared to others and even the ultra-dovish BOE expects the UK economy to grow over 3% this year. Being just over one year away from a general election it’s not surprising to see two of the most important non-governmental bodies maintaining a such a dovish stance as there’s unlikely to be many in the current Coalition that would want to see rates rise before then.
This blew a little wind out of sterling’s sails which drifted lower against the dollar throughout the Budget, whilst the FTSE 100 remained largely flat. GBPUSD has seen good strength so far in 2014 hitting a new four year high only last month and since the year began it didn’t take long to reach FxPro’s Q1 target. As Q1 draws to a close and this Budget confirms that we’re unlikely to see rates rise any time soon, the target of 1.6300 for GBPUSD at the end of Q2 remains and against the Euro further softening is expected to take EURGBP to 0.8465 (that’s 1.1813 for those who prefer GBPEUR).