The UK Spring Statement, which was delivered by Chancellor Philip Hammond, delivered some fairly positive economic news, which has caused many to speculate about the pound and its future prospects. Those involved in trading in different currencies overseas will no doubt be eager to exploit any trading opportunities which may present themselves as a result of this most recent news.
The extent to which the Spring Budget will influence the pound remains to be seen, but here are some of the possible effects it could have on the UK currency.
The first major effect that the Spring Statement could have on the pound is to strengthen it by potentially increasing its value. Since the UK economy has seen ample amounts of turbulence and uncertainty since the Brexit vote, positive economic news is likely to have a powerful effect on the mindset of investors looking to buy the pound.
Those who were cautious about the pound’s future (it did, after all, crash by 7% against the euro in the wake of the Brexit vote) could regain some lost confidence in the currency, and begin the explore pairings such as GBP/EUR and GBP/USD.
Image: Sterling strengthened against the Euro, in line with expectations ahead of the event.
The Spring Budget could, then, set the stage for widespread investment in the pound. Although the forex market is incredibly volatile, investors usually make decisions based on economic data, such as that contained in the statement. This means that the Spring Budget could well prove to be a turning point for forex investors who may previously have been sceptical of the pound’s future prospects.
If more people do invest in the pound, then it could well serve the boost the currency’s value further, especially against other popular currencies like the euro and the dollar.
An End to Austerity?
It has been suggested that austerity, which has seen numerous cuts to public services, could be about to end, which is certainly likely if the economy achieves strong growth over the next year or so. If this is the case, then the pound could be strongly influenced by future economic policies which focus on boosting the economy through spending and investment.
This would likely increase productivity, and help to stimulate trade between the UK and other countries. As a result, the pound would likely see further gains, so investors may want to buy the pound whilst it is cheaper in the hope that they can make good gains in the long term.
Whilst the Spring Statement did contain positive news about the economy, some will still be concerned that the upgraded growth forecasts are only marginal, and will do little to offset the current uncertainty which pervades the UK economy.
The growth forecast, for instance, only rose by 0.1%, which many will see as a very small gain, and perhaps one which will not make much difference overall. This means that there is no strong indication that the economy will perform well in the long term, and many may now wait until the Autumn Statement to get a clearer idea of how the pound’s fortunes will play out.
The Spring Budget of 2018 is, ultimately, good news for the pound, especially with growth forecasts being upgraded. If you’re a business buying or selling in different currencies, check out our FX hub to look at how to prepare yourself against adverse foreign currency movements.