U.K. Chancellor Pledges Five More Years of Austerity
U.K. Chancellor of the Exchequer George Osborne sticks to his policy of deficit reduction, despite the lack of growth in the economy, saying government spending cuts will carry on for three years after the 2015 election. The UK economy is now expected to grow 0.6 percent this year, half the rate predicted three months ago and rising to 1.8% next year. The central bank inflation target would remain at 2 percent a year. He announced tax cuts for low earners and companies and measures to boost home ownership, all financed by a squeeze on departmental budgets and a renewed crackdown on tax avoiders. Britain’s economy may already be back in a recession again after a contraction in the last quarter of 2012. Osborne would stick to the same fiscal course while providing the Bank of England with greater scope to stimulate demand. In other related news, Office for National Statistics figures showed that retail sales rose 2.1 percent. The rise was due to sales in computers and technology, and goods bought online.
Meanwhile, the European Central Bank said it will cut Cypriot banks off from emergency funds after March 25 unless Cyprus agrees on a bailout with the European Union and International Monetary Fund. Cypriot banks have relied on Emergency Liquidity Assistance funding from their own central bank since they were cut-off from regular ECB refinancing operations in June. This was after the downgrading of the country’s credit rating by all three major rating firms to “junk” status.
Whereas in the U.S., Sales of previously owned homes probably rose in February to the highest level in more than three years, sustaining a rebound that is boosting growth. Growing demand for homes combined with limited supply is pushing property values up, leading to gains in household confidence and wealth that are helping promote consumer spending.
On the FX markets, even though the GBP/USD settled the session in minor positive territory, supported by the release of the most recent BoE policy meeting minutes which showed that some MPC are concerned at the pace of the depreciation of the GBP, the pair remains in a bearish mode and is expected to resume the trend in the coming days. The release of the budget statement by the Chancellor was largely inline with expectations. The Chancellor stated that growth prospects have been undermined by the ongoing troubles in the Eurozone, but despite the speculation, he refrained from altering BoE’s 2% inflation target. Major support level is seen at 1.5004, followed by the March 12 low at 1.4832.