The UK’s 2024 autumn Budget is set to be delivered on 30th October. This will be the first Budget under Sir Keir Starmer’s Labour Government, with Chancellor Rachel Reeves presenting the government’s fiscal roadmap.
With speculation swirling about potential tax rises, spending cuts, and possible changes to welfare policies, financial markets are likely to be highly sensitive to the announcements.
In this article, we’ll explore how previous Budgets have influenced the pound, what we might expect from the upcoming one, and how businesses can prepare for potential currency volatility.
Table of contents
- Looking back: How have previous Budgets affected the pound?
- Potential impacts on the pound and financial markets
- How could the 2024 autumn Budget impact the pound: expert insight from Privalgo
- How can businesses prepare for Budget-driven currency volatility?
- Conclusion: what to expect for the pound post-Budget
- 10 FAQs about the 2024 autumn Budget and its impact on the pound
Looking back: How have previous Budgets affected the pound?
By dipping into the history books, we can gain a better understanding of how the pound has reacted to past Budgets and what might happen following the 2024 autumn Budget. Let’s look at some notable examples:
2022 autumn mini-Budget
The 2022 autumn mini-Budget, presented by then-Chancellor Kwasi Kwarteng, made headlines for its dramatic impact on financial markets.
Under the government of Liz Truss, the announcement of unfunded tax cuts spooked investors, leading to a severe drop in the pound against the US dollar and euro.
In the days following the mini-Budget, GBP/USD fell to a historic low of 1.0350, its lowest level since 1985.
This marked a significant drop, as the pound lost nearly 5% of its value against the dollar in just a few days. The government took a well-needed U-turn on many of these policies which helped the pound recover slightly. However, the impact caused by the Kwarteng’s red box highlighted how sensitive markets can be to unexpected fiscal plans.
2016 autumn Budget and Brexit impact
The 2016 autumn Budget was heavily influenced by the uncertainty surrounding the UK’s decision to leave the European Union and its free trade single market.
The pound reacted sharply, falling over 15% against the US dollar in the aftermath of the Brexit referendum.
The 2016 Budget, which aimed to stabilise the economy during an up and down period, had limited immediate impact on sterling. Instead, broader economic concerns over Brexit negotiations continued to weigh on the currency well into 2017.
2021 autumn Budget
The 2021 autumn Budget focused on economic recovery post-COVID-19. Key measures included increased infrastructure spending and support for public services.
The pound saw a relatively stable response, as the measures were largely in line with market expectations. GBP/USD remained around the 1.37 mark, with limited fluctuations.
Read: FX volatility: What causes currency appreciation and depreciation?
What to expect from the 2024 autumn Budget?
Given the Labour government’s policy approach and economic priorities, the 2024 autumn Budget is likely to introduce new fiscal measures aimed at addressing inflation, public debt, and economic growth.
The government has confirmed it won’t raise VAT (value added tax), income tax and National Insurance.But with Sir Keir Starmer’s rhetoric of “difficult decisions” driving the speculation, markets are anticipating changes to:
- Capital gains tax (CGT)
- Inheritance tax (IHT)
- Fuel duty
- Pension tax relief
- Non-dom tax status
Reeves’ approach to non-dom tax status has been watched particularly carefully by currency analysts.
Non-dom refers to a UK resident whose permanent home is outside of the country. This means they don’t pay tax on money earned elsewhere.
Labour may look to become tougher on the non-dom tax status to raise more funds. However, concerns have arisen within the Treasury that non-dom tax reforms will bring in less money than expected.
The worry is that high-net-worth individuals and investors will simply leave the country if the government asks them to pay more tax.
Such a move would likely dampen confidence in the UK’s economic outlook, which could put downward pressure on the pound.
Conversely, if these changes are viewed as promoting fairness without driving away investment, sterling might see a more stable reaction.
As the government considers these “difficult decisions,” it’s essential for businesses and consumers to prepare for potential volatility in currency markets.
Potential impacts on the pound and financial markets
Ahead of the 2024 autumn Budget, market participants will be closely watching for any hints or signals from the government.
Exchange rates may experience increased volatility if the Budget’s content differs from expectations or if its policies are received badly.
Historically, the pound tends to weaken when Budgets suggest increased borrowing or spending beyond current means, as seen during the 2022 mini-Budget.
On the other hand, policies considered fiscally responsible or with a focus on growth, such as supporting business investment, can strengthen the pound.
Read: How do interest rates affect the pound?
How could the 2024 autumn Budget impact the pound: expert insight from Privalgo
If your business makes international payments with the pound, the impact of the Budget this autumn could have a profound effect on your bottom line.
To give us a better understanding of what to expect, we’ve spoken to Matt Clarke, Chief Revenue Officer and Founder at Privalgo.
Here’s what Matt had to say:
“The upcoming UK Autumn Budget is likely to trigger significant movement in currency markets, with potential volatility in the pound sterling against major currencies such as the US dollar and the euro.
As currency specialists, we anticipate some initial volatility in exchange rates as the market digests these policies. This could have immediate implications for both businesses and consumers engaged in international transactions.
For consumers, currency volatility can have several impacts:
Travel costs: Fluctuating exchange rates can affect the cost of holidays abroad. A weaker pound would make overseas trips more expensive, while a stronger pound would increase purchasing power for UK travellers.
Import prices: Many consumer goods are imported. If the pound weakens, these goods could become more expensive, potentially leading to higher inflation.
Remittances: Those sending money abroad or receiving funds from overseas may see the value of their transfers change rapidly.
Key Budget elements that could influence the pound’s performance include:
Business tax roadmap: The commitment to freeze corporation tax at 25% could be viewed positively by investors, potentially strengthening the pound. However, sector-specific taxes might dampen this effect.
Industrial strategy: The proposed 10-year industrial strategy, particularly investments in green technology, could boost confidence in the UK economy, potentially supporting sterling in the medium to long term.
Employment measures: Increases to the National Minimum Wage might initially pressure the pound due to inflationary concerns, but could support it later if seen to boost economic growth.
Tax avoidance crackdown: The pledge to invest in HMRC to close the tax gap could be seen as promoting fiscal responsibility, potentially supporting the pound.
Businesses and consumers alike should be prepared for potential currency fluctuations in the wake of the Budget announcement.
For businesses, it may be prudent to consider hedging strategies to mitigate exchange rate risks. Consumers planning significant foreign currency transactions might want to keep a close eye on exchange rates and consider locking in rates if they’re favourable.
While initial volatility is likely, if the Budget is perceived as promoting long-term economic growth and stability, we could see a gradual strengthening of the pound against major currencies over time.”
Read: How do UK general elections affect sterling?
How can businesses prepare for Budget-driven currency volatility?
As Matt pointed out, businesses engaged in international trade should prepare themselves for potential swings in the value of GBP.
To limit the risk of any significant fluctuations, your business should consider adopting foreign exchange (FX) strategies to provide greater certainty and protect against negative currency movements.
Hedging strategies
Think about exploring hedging products such as forward contracts and market orders to lock in exchange rates or target favourable exchange rate movements. This can help safeguard your profit margins and lead to more predictable costs even in volatile market conditions.
Monitor market expectations
Stay informed about market sentiment and expectations leading up to the Budget. This can help your business anticipate potential currency movements and adjust their financial strategies accordingly.
Alternatively, you can leave the market analysis up to us. At Privalgo, our FX specialists are constantly checking the currency markets and relevant news to provide the most relevant and up-to-date information possible.
This means you can take advantage of expert guidance and save yourself and your team from constantly checking the latest updates.
How can businesses prepare for Budget-driven currency volatility?
With the 2024 autumn Budget looming, all eyes are on the UK government’s fiscal strategy.
Whether the pound strengthens or weakens will largely depend on how investors view the balance between keeping fiscal policy tight and boosting the economy.
Businesses should prepare for potential market volatility and consider implementing strategies to protect against currency risk.
Partnering with an FX specialist like Privalgo can provide your business with the tools and guidance you need to navigate these uncertain times effectively.
Using tailored FX hedging strategies, we can help ensure your business is well-positioned to manage currency risk and maximise value in the wake of the 2024 autumn Budget.
10 FAQs about the 2024 autumn 2024 Budget and its impact on the pound
Below are 10 frequently asked questions (FAQs) about the autumn 2024 Budget. Some include content from this article.
What is the autumn Budget 2024 and when will it be announced?
The autumn Budget 2024 is the UK government’s fiscal statement, outlining spending, taxation, and economic strategy. It will be presented by Chancellor Rachel Reeves on 30th October 2024.
What impact can the Budget have on the pound sterling?
The Budget can lead to fluctuations in the pound depending on the perceived fiscal responsibility of the policies announced. For example, measures that increase borrowing or spending beyond means may weaken the pound, while growth-focused initiatives can support sterling.
How did the 2022 mini-Budget affect the pound?
The 2022 mini-Budget led to a sharp decline in the pound, with GBP/USD dropping to 1.0350—its lowest level since 1985. This was due to concerns over unfunded tax cuts and increased borrowing.
What changes are expected in the 2024 autumn Budget?
The 2024 Budget is expected to address areas such as capital gains tax, inheritance tax, pension tax relief, and non-dom tax status, while maintaining existing VAT and income tax rates.
What is non-dom tax status and why is it significant?
Non-dom tax status allows UK residents whose permanent home is outside the country to avoid paying tax on foreign earnings. Potential changes could lead to high-net-worth individuals leaving the UK, impacting the economy and the pound.
What could happen to the pound if non-dom tax status is tightened?
If non-dom regulations become stricter, it could lead to reduced confidence in the UK’s economic outlook, possibly weakening the pound. Alternatively, if seen as promoting fairness without driving away investment, the pound could remain stable.
How have previous Budgets affected the pound?
Historically, Budgets suggesting higher borrowing or controversial policies have weakened the pound. For example, the 2022 mini-Budget led to a historic drop in GBP/USD. Conversely, stable or growth-focused Budgets like in 2021 have had minimal impact.
What are the potential business implications of Budget-related currency volatility?
Businesses could face increased costs for imports, reduced profit margins, and uncertainty in international transactions. Implementing hedging strategies can help mitigate these risks.
How can businesses prepare for Budget-related exchange rate fluctuations?
Businesses should consider hedging products such as forward contracts and market orders. They can use these products to lock in favourable rates and protect against adverse currency movements.
What should businesses watch out for in the 2024 Budget announcement?
Key elements to watch include changes to taxation (e.g., corporation and non-dom tax), employment policies, and the government’s industrial strategy. These can influence the pound’s value and impact businesses engaged in international trade.
