Sterling approaches five-week high ahead of UK budget announcement

Sterling rose in European trade on Wednesday against a basket of major rivals, extending gains for the fourth straight session against the dollar and almost touching a five-week high ahead of the UK government budget announcement. 

The new budget could include a batch of fresh stimulus measures that could boost  consumer spending in the country, which could in turn lead to sustainably higher inflation. 

GBP/USD

GBP/USD rose 0.1% to 1.2716, with a session-low at 1.2690, after rising 0.1% on Tuesday, the third profit in a row, scaling a five-week high at 1.2735, following weak US services data. 

2024 Budget 

Tomorrow, the UK finance minister Jeremy Hunt will announce the details of the general budget for 2024 with all spending, income, and borrowing detailed. 

Hunt will likely calm down concerns about big tax cuts before general elections, and will likely announce a positive financial outlook for the economy.

Estimates

Barcly’s strategic experts said there could be some stimulus measures in the 2024 budget, but they won’t offer much support for the pound. 

Societe Generale Bank analysts note that such financial events usually don’t move the pound, unless the borrowing and spending estimates cause an unaccounted-for reaction in government yields and Bank of England interest rates. 

The analysts believe that the sense of financial responsibility was restored with Prime Minister Sunak and finance minister Hunt, which led to lower government bond yields and lower debt service costs.

What stimulus measures are contained in the budget will be aimed at boosting consumer spending and economic performance, but could risk maintaining inflation higher for an extended duration.