The British Pound couldn’t quite make two consecutive days at the top of the table but still had a pretty good day. GBP/USD had actually spent most of the Asian session and European morning in a fairly tight range, unchanged from the previous New York close at 1.3900 until the moment UK Chancellor Phillip Hammond stood up to present the inaugural Spring Statement to the House of Commons. By the time he had finished, ‘cable’ stood at 1.3965 and went on to a day’s best of 1.3985. Overnight, it has given back around 20 pips of these gains.
We wrote here yesterday that, “There is the chance of a rare upgrade to UK economic forecasts after the incoming data over the past few months have shown the Office for Budget Responsibility was too pessimistic in its assumptions on UK productivity.” That is exactly what happened, albeit the upward revisions were only very small and from an exceptionally weak starting point. What really grabbed the attention was how upbeat the Chancellor was; as if he had been practicing really hard for quite some time. Often accused of being an Eeyore (the pessimistic, gloomy, depressed, old grey donkey who is the friend of Winnie-the-Pooh in the childrens’ books by A.A. Milne), Mr. Hammond began by insisting, “I am at my positively Tigger-like best” (As this character says, bouncing is what Tigger does best). He proceeding to read a series of five-year economic growth forecasts which should reduce any adult to tears of sadness, not joy: 1.5%, 1.3%, 1.3%, 1.4% and 1.5%. This will be the first time in 70 years of five consecutive years of growth below 2%, but the Chancellor made it sound like the winning lottery numbers; hailing a 0.1% upward revision to the 2018 number.
The Chancellor promised Britain that, “our best days lie ahead of us” and said he would use the budget this autumn to set out his expenditure expectations for 2020 and beyond, with a full spending review next year, after Brexit. If the public finances continued to reflect the improvements outlined in his Statement, he said the government would “have capacity to enable further increases in public spending and investment in the years ahead.” Rarely has such poor news been so well received; both by backbench MP’s and a usually more skeptical foreign exchange market. There are no UK economic statistics today, so we’ll have to see if investors have any second thoughts on GBP or whether it can hold on to Tuesday’s gains.