Bloomberg: Budget balancing will prop up GBP/USD

16 November 2022 102
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Source: Bloomberg

Author: Marcus Ashworth

ArticleOriginal article

Publication date: Wednesday, November 16, 2022

 

Britain's new chancellor of the Exchequer Jeremy Hunt announced in Autumn statement on Thursday that he would have to balance the books and save UK from falling into recession. Now he needs to fill a 50 billion pound ($59 billion) hole in the country's public finances.

 

Sunak made a statement earlier this week reporting that it's necessary to put public finances on a sustainable trajectory to come up to expectations of international markets. The authorities must prevent turmoil in financial markets that defeated Liz Truss in just 44 days. 

 

It's necessary to increase short-term revenue by raising taxes and cutting spending to get the equilibrium and calm the gilt market. The Bank of England should be confident that an effective public financial management system will also help it combat double-digit inflation. Only then it will be able to slow its interest rates hikes.  

 

The more Hunt will contribute to the tightening of fiscal policy, the less measures the Bank of England will have to take on the monetary front. However, concentrating on too much fiscal problems now will cause the UK economy to slide into a worse recession. In addition to this, the government may face weakening pound and deeper hole in the country's public finances. It will require a lot of efforts to close the fiscal gap without damaging near-term growth, and handle inflation. But it would be a good start to get the government and the central bank on the same page. 

 

Forecast:

UK budget balancing will contribute to the GBP/USD growth.

This content is for informational purposes only and is not intended to be investing advice.

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