UK Chancellor Reeves: Will focus on lowering inflation in budget

Sagar Dua FXStreet

United Kingdom (UK) Chancellor of the Exchequer Rachel Reeves expresses concerns during the European trading session over the rising cost of borrowing. Reeves added that progress in inflation towards normalization has remained slow.

Additional comments

I will make choices necessary to deliver strong foundations for this economy.

Inflation has been too slow to come down.

The UK has particularly exposed to rising cost of borrowing.

The cost of government borrowing has increased around the world.

It is clear that the productivity performance is weaker than previously thought.

Tory-era austerity dealt hammer blow to UK economy.

Austerity is a mistake of the past.

Budget decisions will be focused on lowering inflation.

In the budget, I will root out waste wherever I find it.

Mine will be a budget for growth that supports businesses to innovate.

As I take my decisions on both tax and spend, I will do what is necessary to protect families.

We will go further and faster on planning, industrial strategy and reforming regulation.

Forecasts are based on past data; past isn't our destiny.

Market reaction

The GBP/USD pair trades 0.26% lower to near 1.3100 during the press time, the lowest level seen in over six months.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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