Beyond Currency

"Later today, Chancellor of the Exchequer, Rishi Sunak will present his Budget to Parliament.

However, Sunak has drawn criticism from the Speaker of the House for continuing a recent trend for important announcements to be made at press conferences rather than in Parliament.

Most of the most eye-catching policies have already been leaked. They include an increase in the minimum wage, the removal of the pay freeze in the public sector, a £5.9 billion payment to the NHS to cut waiting times, funding for the Government's levelling-up initiative as well as the creation of new T-Levels in schools that will provide qualification sin more practical subjects.

The more mundane issues of excise duty increases and unpopular rises in taxation will be provided from within Parliament’s protected halls.

Overall, the Budget is expected to usher in the new post-Covid, and to a certain extent, post Brexit world that has been promised.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The minimum wage in the UK is set to rise from £8.91 per hour to £9.50 with the change to be confirmed in tomorrow’s budget.

This means an increase of just over £1.000 a year for a full-time employee.

The rise will, in Chancellor Rishi Sunak’s words, ensure that working pays and goes some way to ensuring that low pay is eliminated in this Parliament.

The rise in the minimum wage could bring the Government a problem when negotiations begin for public sector employees, since it is more than twice the rate of inflation.

A payment of £5.9 billion has also been announced for the NHS to reduce the backlog of operations caused by the lockdown and to improve the current length of waiting lists.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"There is little doubt that the UK economy has slowed considerably since its stellar recovery from recession.

It will be difficult for Chancellor of the Exchequer Rishi Sunak to put in place plans to boost the recovery, since it is almost impossible to know exactly which of the problems are most pressing.

Sunak is facing calls from industrial leaders' federations to leave taxation as it is, since with the current problems facing manufacturing and logistics, a rise in tax could easily blow them off course.

Hauliers are facing the threat of having to pay significantly higher wages to drivers to be both able to employ them and keep them. That will certainly have a knock-on effect.

Sunak clearly didn't reckon with the issues facing the economy like fuel prices, and high and rising inflation when he set out to plan for this Budget.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Prime Minister Boris Johnson is refusing to face the prospect of the country’s recovery stalling as inflation, supply chain issues and rising cases of Coronavirus threaten to derail his plans.

The latest data for Covid-19 infections shows that more than 50k new cases were reported in a day for the first time since July. This marks just the second time since January that the rate has reached that level.

Hospital admissions are rising too, although fatalities remain lower than were seen the last time infections were at the current level.

The Government is refusing to countenance a return to restrictions that were ended a few months ago. It is relying heavily on the booster dose of the vaccine.

The data shows that the majority of those infected are either below twenty or over eighty. With the half-term break taking place next week, this may provide a natural firebreak in the lower category.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Inflation data for September was released yesterday and the headline fell marginally to provide a little relief to the Bank of England.

The consumer price index fell from 3.2% year on year to 3.1%. While a single piece of data won't have too much effect on the Bank's plans, every journey starts with a single step.

Factory gate prices as depicted by producer price data, continue to rise, climbing from 11.2% to 11.4% over the same period.

While the country continues to face major bottlenecks in the logistics sector, exacerbated by the shortage of HGV drivers, inflation is unlikely to fall back below 3% in the short to medium-term.

The country appears to be slipping back towards a fourth Coronavirus lockdown as, yet again, the Government is seen to dither over making the decision.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The UK economy is facing a series of headwinds that could halt the country’s recovery from the Coronavirus Pandemic in its tracks.

First, the number of cases of Covid-19 is beginning to rise again with fatalities at a level not seen for six months, with NHS experts calling for the reinstatement of restrictions to create a firebreak.

Second, the economy is being significantly affected by shortages of both raw materials and spare parts, as well as delivery issues that are holding up distribution of imports from the country’s ports.

Finally, the Bank of England is having to consider the possibility of having to raise interest rates to head off rising inflation that Governor Andrew Bailey has been forced to accept is likely to continue to rise or at least remain at elevated levels well into next year.

The issues being seen in the logistics sector, glibly dismissed as part of the transition away from the country's reliance on cheap labour post-Brexit, by the Prime Minister, could easily remain an issue for a significant period, forcing another U-turn.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Chancellor of the Exchequer Rishi Sunak is preparing his Autumn budget that will be presented to Parliament next week.

He is trying to begin balancing the books but is also facing calls to continue spending. He is receiving requests for funds almost daily from colleagues who believe that the urge to splurge should continue.

When he was doling out support at the height of the pandemic, he was just six months into the job and was fast becoming the darling of his Party.

Now, things have changed almost completely. Far from providing free handouts, he is trying to rein in profligate Ministers.

Sunak sees his role as creating a sustainable path that allows the Government to continue Boris Johnson’s levelling up agenda, while also looking for opportunities to save funds. Every Department is being tasked with contributing to the pot by making savings and efficiencies totalling 5% of their total budget.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"As the recovery from the Coronavirus outbreak has begun, Bank of England Governor, Andrew Bailey, has been confident that the rise in inflation that has gripped most developed economies is simply a reaction to the level of support being provided.

This theory is about to be severely tested as the wholesale price of gas continues to rise. This is fed through into UK households in the shape of higher fuel costs and is also having a knock-on effect on other energy sectors, in particular, the price of oil.

Petrol prices are already significantly higher. The pump price of standard unleaded petrol is now above £1.40 per litre.

Bailey is beginning to feel the pinch and is concerned that the Central Bank will have to act to curtail what could fast become a major crisis for the recovery.

Raising short-term interest rates to curtail rising inflation would be a fairly drastic measure, but the MPC may be left with no choice.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Bank of England has been making every effort to maintain control over the withdrawal of support for the economy. Andrew Bailey, the Bank’s Governor, has been definite in his view that the increase in inflation that is being seen not only in the UK but across the entire developed world is temporary and will fade as supply chains return to normal.

However, each economy is different, facing its own individual issues as well as those common to each.

In the UK, the wholesale price of gas, which has quadrupled this year, will filter through to households and contribute to a more permanent increase in inflation.

The Bank of England has been making every effort to maintain control over the withdrawal of support for the economy. Andrew Bailey, the Bank’s Governor, has been definite in his view that the increase in inflation that is being seen not only in the UK but across the entire developed world is temporary and will fade as supply chains return to normal.

That problem will be shared with the Eurozone. The unique issue that is facing the UK is a major shortage of labour caused by Brexit.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Huw Pill, the new Bank of England Chief Economist, took to the wires for the first time yesterday to provide his view on the prospects for inflation and interest rates in the medium-term.

Pill, another of the Goldman Sachs alumni to find their way to the Central bank was expected to lean towards a hawkish stance given his past comments he has made, He feels that the balance of risks is leaning towards inflation remaining an issue for some time.

He expects higher levels of inflation to last longer than had been hoped for as the scale and magnitude of what he called transient inflation is lasting longer than expected.

Huw Pill, the new Bank of England Chief Economist, took to the wires for the first time yesterday to provide his view on the prospects for inflation and interest rates in the medium-term.

He went on to comment that markets cannot expect interest rates to remain at low levels for the coming years.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.