UK's Reeves: Real disposable income to grow this year at nearly twice the rate forecast in October

Source Fxstreet

While delivering the Spring Budget, UK Chancellor of the Exchequer Rachel Reeves noted that they will bring forward 3.25 billion Sterling of investment to reform public services, per Reuters.

Key takeaways

"Day-to-day public spending will rise by 1.2% a year in real terms, vs 1.3% in October."

"Day-to-day spending in 2029-30 will be 6.1 billion Sterling lower than planned in October."

"Will increase capital spending by an average of 2 billion Sterling a year."

"Planning reforms will permanently boost GDP by 0.2% in 2029/30."

"Planning reforms will add 0.4% to GDP in 10 years."

"Overall measures will boost UK GDP by 0.6% in 10 years."

"Growth reforms will deliver an extra 3.4 billion Sterling to support public services by 2029/30."

"Our economy is forecast to be larger at the end of forecast period than forecast in October."

"Real household disposable income will grow this year at nearly twice the rate forecast in October."

Market reaction

GBP/USD stays in the lower half of its daily range as markets assess the details of the Spring Budget. At the time of press, the pair was down 0.3% on the day at 1.2905.

Pound Sterling FAQs

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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