Wednesday = budget and MPC minutes
This week’s financial headlines will be driven by the Chancellor’s budget on Wednesday. If newspapers reports are to be believed those of you who enjoy a glass of wine or a cigarette may feel the pinch – with it rumoured that 17 pence will be added to a pack of cigarettes and 13 pence to a bottle of wine. Mr Osborne is also expected to postpone a one pence rise in fuel duty, but with petrol at 137 pence and it costing £70 to fill my car, please excuse my lack of excitement at the prospect of saving 1 penny a litre.
The coalition has been trying to shape the headlines in the run up to the budget portraying it as the ‘budget for growth’ – so expect a raft of business announcements. Some measures that may feature include reforms to simplify the tax system and a reduction in bureaucracy to encourage businesses to invest and expand. Don’t expect any big cash giveaways as the Chancellor doesn’t have any money to give away! With George Osborne certain to continue his spending cuts programme and the official growth forecast likely to be revised down from 2.1% to around the 1.5% -1.8% bracket, the Chancellor will have to ensure his measures support the private sector as he relies on them to keep the UK economy moving.
Just before the Chancellor takes to the dispatch box on Wednesday the Bank of England’s MPC minutes are also released. Expect great interest from the currency markets as the minutes are analysed in an attempt to gauge the current MPC’s sentiment. With CPI inflation figures released tomorrow forecast to show inflation increasing to 4.2% the pressure to increase rates remains.
With the budget just 48 hours away you would expect the pound to be rather subdued, but in overnight trading sterling was stronger against the dollar at 1.6240, nearing 14 month highs. The dollar has been weaker in recent days on reduced safe haven support, but with the Middle East unrest and Japan’s nuclear crisis still unfolding renewed risk aversion in the market is a possibility, which could provide renewed support for the US dollar. For now though the dollar remains weak with EUR/USD at 1.4157. The pound also remains weak against the euro at 1.1473 with the expectation that the ECB will increase rates at next month’s meeting supporting the single currency.