This was meant to be a story for Q4, but Labour rebels have brought forward the nightmare..
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| This time yesterday I highlighted things were looking rather bleak for GBP v EUR, the trend is negative, but no need for panic stations (yet).
And then Rachel Reeves was caught crying in the commons and the Pound lost 0.5%+ across the board..
The Pound is now the weakest currency in the G10 for the year and the UK's fiscal position is under severe scrutiny, way before the potentially awful result of the Autumn budget.
The Government has been forced by left-wing party rebels to abandon the proposed changes to the UK's welfare system. An expected saving of £5BN to the economy has been lost and now the country faces a very real financial crisis.
Economic growth guarantees the future payment of the country's debt, but if/when taxes get raised in a few month's time, this will ultimately kill economic growth, which is already completely stagnant as it is.
We expect to see interest rates now cut more dramatically to encourage borrowing to spend. This will see a weaker GBP.
The only positive out of this for the Pound was the Prime Minister's backing of his Chancellor. It would have meant more uncertainty and therefore more pain for GBP if he didn't both near and long term.
Sterling has stabilised some and the UK bond market also, but GBP v EUR has a long road to recovery and if it doesn't come this quarter, the end of the year is going to be very 'messy'.
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