UK Budget 2024: live Updates as Chancellor Reeves Announces Plans
The UK is awaiting Chancellor Rachel Reeves’ budget announcement today, with meaningful attention focused on the government’s plan to address a ample fiscal challenge and stabilize the economy.
The fiscal Picture
According to analysis, this budget is unique in recent history due to a clear understanding of both its starting point and intended endpoint. The budget begins with a £20 billion fiscal hole and aims to conclude with the Chancellor increasing fiscal headroom to between £15-20 billion – potentially doubling the current level. The key question is how Reeves intends to bridge this gap.
Analysts anticipate a “smorgasbord of tax raising measures” will be unveiled as part of the budget. While not expected to be as dramatic as the previous year’s budget,it is predicted to be the third largest tax-raising budget in the post-war period.
Pound Sterling Under Scrutiny
The British pound has been volatile, recently plunging to a record low in Asia following the government’s announcement of tax cuts and investment incentives. Markets are closely monitoring the currency’s strength today, viewing it as a real-time indicator of investor reaction to Reeves’ plans.
As of Wednesday morning, the pound was up 0.18% against the dollar.
Alpine Macro’s Chief Global Fixed Income and Currency Strategist Harvinder Kalirai suggests sterling faces a difficult situation. “If Chancellor Reeves tightens fiscal policy, it will open the door for more easing by the [Bank of England]. Tight fiscal/easy monetary policy is a classic mix for a weaker currency,” he stated. Conversely, a cautious approach from Reeves could raise concerns about UK deficits and debt, also weighing on the pound.
Daniel tobon, head of G10 FX strategy at Citi, notes that leveraged investors hold short positions on the pound tied to the budget event. He observes that despite negative news regarding the budget and weaker UK data, the pound has not considerably declined in recent weeks, suggesting existing short positions may already be priced in.
Citi had targeted 0.88 for EURGBP leading up to the budget,a target that has been met,but further gains have been limited. Tobon suggests a risk of a “position squeeze” – an unwinding of short GBP positions – and believes some investors may already be reversing these trades as gilt yields have stabilized.
