UK: Autumn Statement expected to have limited impact on the GBP - MUFG

Lee Hardman, Currency Analyst at MUFg, suggests that the main focus in the European trading session will the release of the Autumn Statement in the UK and Chancellor Hammond is expected to reveal a modest fiscal stimulus in response to the Brexit uncertainty.

Key Quotes

“The case for a stronger stimulus has been dampened by the resilience of the UK economy following the Brexit vote and the government’s desire to prevent a more material deterioration in the public finances with the budget deficit already elevated at around 4% of GDP.”

“Economic growth this year is on course to meet the OBR’s Budget forecast from earlier this year for growth of 2.0%. However, the OBR is likely to take a more downbeat view over the outlook for growth in the medium term following the Brexit vote. The OBR were previously expecting growth of 2.2% in 2017 which is likely to be halved moving it closer to current consensus expectations. The FT has reported that weaker tax revenue this year and the lower growth outlook are likely to result in a GBP100 billion increase in borrowing which is seen as permanent.”

“The headline policy focus is expected to centre on infrastructure investment plans and help for “just about managing” families including freezing fuel duty, lowering the effective tax rate on universal credit and increasing the National Minimum Wage next April by 4%.”

“Overall, we do not expect the Autumn Statement to have a material impact on the pound. A modest loosening of fiscal policy is unlikely to offer much support for the pound. At the margin it will support our view that the UK economy will continue to outperform relative to more downbeat consensus expectations in the year ahead, which should help to further ease bearish sentiment towards the pound.”