'Orderly' reaction in gilts and Pound so far as markets 'breathe sigh of relief'
We’ve seen a relatively orderly reaction in gilts and the pound to the details of the budget so far. Market participants will be breathing a sigh of relief that the Chancellor appears to have learnt from past mistakes, and will instead be affording herself a larger fiscal headroom in excess of £20 billion, as opposed to the razor-thin one we saw last year.
In theory, this should lower the likelihood that the government will need to return to the tax well again down the road, albeit with the caveat that market participants will first need to assess whether or not this fiscal restraint can go hand in hand with robust economic growth. That won't be easy given the sheer scale of tax increases now barrelling towards Britain's economy.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
