Budget at a Glance
Although Coronavirus is still dominating headlines and ultimately the market, Wednesday’s March 11th budget will be a momentous occasion for the UK and it’s new Government. Delivered by a new Chancellor who will be stepping up for the first time; Followed the next day by a new Bank of England Governor, whose first major decisions will be in part, a reaction to these announcements. As for the nation itself, this budget is the first to be drawn up since Brexit. Everyone will be paying close attention to the red box and the Treasury who will then act on it.
With the departure of Sajid Javid, No. 10 have inserted a new Chancellor who aligns more closely with their own goals. Rishi Sunak will now take the lead role as Boris Johnson’s Govt. continues to move economic policy into Downing Street. Although the Treasury is kept separate from the Government, so as to be independent of policy, the Conservatives are striving for a closer relationship that can help them see through a budget focused on bigger spending.
Johnson will be looking to use a spending increase to attract more investment into the country and boost the market during the current unstable global economic climate. An increase in fiscal expenditure will also be a move at countering the effects of Coronavirus, which has now hit many large global economies and caused a temporary slump in UK investment. Britain’s services sector which makes up 80% of the country’s economic output, has stalled in the wake of the outbreak. Spending more to build up the country will also represent an end to the austerity measures brought in By Prime Minister Johnson’s own Government in 2008.
Of course, it’s now common knowledge that this year’s budget will be all about infrastructure, with promised improvements in transport efficiency and building affordable homes. House building has been a particular focus, with the proposed stamp duty on overseas investors potentially creating a narrow window for foreign buyers to snap up UK property.
What it means for Sterling
In terms of the economy, sterling saw an increase against the dollar and the euro when the new Chancellor was appointed. A similar push could be felt as we get closer to March 11th.
In the immediate lead up to the budget, Sterling will likely become volatile though ultimately, is expected to rise (as is tradition post high spending budget.) The Pound’s strength is also vulnerable given not only Coronavirus fears and the ongoing trade talks between the UK and EU, where headlines dictate good and bad days. This could be difficult to navigate for those making international payments or dealing with foreign exchange. Those who are will likely be looking for a professional opinion or representative to guide them through future transfers.
Larger spending in the budget will be perceived as the best way to boost the economy and create growth spurts, particularly when small businesses and even UK airlines such as FlyBe are suffering because of the global virus outbreak.
The Treasury is still being called upon to introduce a rate cut as a cushion to the impact Coronavirus has had on the country but new BoE Governor Andrew Bailey has made it clear he may prefer to wait and see the impact of Coronavirus before making any decisions over interest rates. He has also said that both the Treasury and the Government will need to set up some form of “bridging finance” to help small and mid-sized businesses in the wake of Coronavirus. This is especially helpful for companies who rely on funds travelling in and out of the country and maybe unsure of what comes next.
Overall, the Pound is expected to enjoy a boost from the budget announcements but as always, things can change. Especially given Coronavirus and if a subsequent rate cut follows the next day by the Bank of England. Those involved in international transfers should always speak to an industry professional on what would be in their best interest.
The Manifesto at a Glance – What’s likely to be announced in Budget 2020
- Infrastructure: Rail infrastructure will be extended up North as well as the purchase of 4000 carbon-free buses in the next five years.
- Digital Tax: Ensuring large tech firms pay their fair share with a new ‘digital tax.’
- Environmental: Continuing the efforts toward a carbon neutral country by 2050: Emissions tax and windfarm investments will most likely be key factors.
- Broadband expansion: A positive yet expensive promise that has been taken up by the PM himself.
- Health: Updates on the pledge to build new hospitals and hire tens of thousands of new nurses.
- Insurance: The threshold for national insurance payments will likely be raised to around £9500.
- Business Rate: A review of business rates in an effort to combat the ‘death of the high street.’
- Living Wage Increase: The promise of a National living wage rise to £10.50 could be rolled out.