he pound could benefit against the euro and the US dollar if Chancellor Rishi Sunak's cost of living package helps give a boost to consumer confidence in the coming weeks, analysts have said.

Speaking on Sky News on Friday morning, a day after announcing the £15bn giveaway for the cost-of-living crisis, Rishi Sunak said that he took a pragmatic approach on taxing the energy sector’s rising earnings. While the government was criticised for taking too long to act, Sunak explained that “It was right to wait until we had some more certainty about what would happen to energy bills in the autumn.” He also explained that electricity producers who avoided the energy profits levy could also face extra tax too, as the government has plans to reform the energy sector.

With energy prices continuing to rise, the government is expected to provide further measures, so the same situation is not repeated next year.

Will the package affect inflation?

The Chancellor explained that the new package will have minimal impact on inflation, much less than 1%, as it is targeted at those in need, while money is being raised through the windfall tax to pay some of the bill.

Sunak also noted that benefits and pensions could also rise ahead of inflation next year, which could push the benefits bill up by £25bn.

Sunak very confident about the outlook for UK economy

Sunak said he was “very confident” about the UK’s economic outlook. He told Radio 4 that the rise in energy prices and the tight labour market have pushed inflation higher. “We are experiencing inflation pressures from both a tight labour market, although that is something to celebrate, but also the energy price shock,” he said.

Deutsche Bank: recession could be avoided

The Chancellor’s £15bn support package should help the UK avoid falling into a recession, analysts at Deutsche Bank said. In a note to clients, Sanjay Raja, Deutsche’s chief UK economist, said that the £400 energy bill rebate and the £650 benefit to the lowest income houses will provide a modest boost to growth. He said the effects of the support will only come later in the year, which will leave households to deal with the real income shock for several more months without much support.

PM Boris Johnson is also optimistic that the UK can avoid falling into a recession, despite the difficult times that lie ahead. “We’re going to have a difficult period, and we’ve got to be absolutely clear with people it’s going to be difficult, and the government cannot solve every problem. We can’t cover everybody’s extra cost. But what we can do is make sure that we deal with the underlying causes of inflation, but also keep our economy strong and open to investment.”

As some analysts have noted, the Chancellor’s support package may have minimal impact in the near-term for the pound, but as soon as more positive economic data is released especially later next month, the then the pound could strengthen.




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The pound US dollar exchange rate lost some of its gains following the release of poor UK retail sales data on Friday morning. The UK retail sales data disappointed expectations as it came in at -0.3% MoM in February, while core retail sales for the UK fell by 0.7% MoM the same month.

The disappointing retail sales data was much lower than the expected 0.6% and the previous reading of 1.9%. The core retail sales, which came at -0.7% MoM was also much lower than the expected 0.5% and the previous reading of 1.7%. When compared to a year earlier, the UK retail sales rose by 7% in February versus the expected 7.8% and last year’s reading of 9.4%, while the core retail sales increased by 4.6% in February versus 5.6% expectations and 7.5% the year before.

Retails sales: main points

According to the Office for National Statistics (ONS), “Food store sales volumes fell by 0.2% in February 2022 with large falls in alcohol and tobacco stores, which may be linked to higher spending in pubs and restaurants as confidence increased in going out; food store sales volumes were 0.1% below pre-coronavirus February 2020 levels.”

In terms of non-food stores sales volumes, there was an increase by 0.6% in February 2022 with growth in clothing (13.2%) and department stores (1.3%), as people returned to their offices and restrictions were lifted.

Automotive fuel sales volumes rose by 3.6% in February 2022 following the end of Plan B restrictions in England at the end of January where people started to travel again, with sales volumes reaching higher pre-coronavirus levels (0.9%) for the first time.

UK consumer confidence falls

GfK’s Consumer Confidence index, which every month provides a snapshot of how UK consumers feel about the economy and their outlook for the next 12 months, has fallen by five points to -31 in March, which are very low levels last seen in October and November 2020.

The forecast for personal finances in the next 12 months fell to -18, which is 28 points lower than this time last year. Expectations for the general economic situation in the next year have also fallen to -49, which is 32 points lower than March 2021.

The Ukraine war, higher cost of living and the pandemic have pushed UK consumer confidence lower as people are more worried about their personal finances. With surging inflation at a 30-year high, and expected to reach 8% in April, people are pessimistic about their financial situation and the more general geopolitical climate due to the war in Ukraine.

Joe Staton, client strategy director at GfK, has warned that there is “more bad news to come.” He said: “A wall of worry is confronting consumers this month and there is an unmistakable sense of crisis in our numbers. Consumers across the UK are experiencing the impact of soaring living costs with 30-year-high levels of inflation, record-high fuel and food prices, a recent interest-rate hike and the prospect of more increases to come, and higher taxation too – all against a background of stagnant pay rises that cannot compensate for the financial duress. This is the fourth month in a row that UK consumer confidence has dropped.”

He also stated that “Confidence in our personal financial situation and in the wider economy are severely depressed while the daily news of unimaginable suffering from a horrifying war in Europe and rising COVID numbers at home is adding to the bleak mood. The outlook for consumer confidence is not good; it’s certain there’s more bad news to come.”

Chancellor Rishi Sunak’ spring statement on Wednesday has also added to the gloomy outlook as households facing the hardest squeeze in the cost of living will get little help, while the Resolution Foundation has warned that 1.3 million people will fall into absolute poverty in 2023.

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The pound is extremely sensitive to global market sentiment and concerns over a slowdown in UK economic growth in the coming months. Investors fear that this will also influence the Bank of England’s monetary policy decisions and could diminish expectations for future interest rate hikes.

The pound fell as higher oil prices resulted in a stock market selloff. Chancellor Rishi Sunak’s Spring Statement also contributed to the pound’s weakness as it offered a disappointing assessment of the UK economic outlook. The Chancellor said that “The actions we have taken to sanction Putin’s regime are not cost-free for us at home. The invasion of Ukraine presents a risk to our recovery as it does to countries around the world.” After the Spring Statement announcement, the chancellor has been criticised for failing to help those who are out of work and on lower incomes.

1.3 million could fall into poverty

The Chancellor’s Spring Statement on Wednesday has attempted to alleviate some of the pain from rising prices by providing some tax cuts, including a 5p-a-litre off fuel duty and a £3,000 increase in the limit for national insurance payments. However, it was criticised for failing to support poorer families and vulnerable groups from the rising cost of living. According to new analysis of Wednesday’s Spring Statement by the Resolution Foundation, around 1.3 million people will fall into absolute poverty in the next year. Typical working-age household incomes will drop by 4 per cent in real-terms next year (2022-23), a loss of £1,100. The poorest quarter of households could see their incomes drop by 6 per cent.

The Institute for Fiscal Studies noted that the Spring Statement omitted "anything for those subsisting on means-tested benefits", who will be dealing with the cost of living increases of about 10% "but their benefits will rise by just 3.1%." Paul Johnson, the Director of the institute told a news conference: "His choice to increase national insurance rates and reduce the basic rate of income tax looks, to me at least, indefensible from an economic point of view - though one can see the political attractions."


The pound has been very sensitive to news regarding the war in Ukraine but hopes for a ceasefire have helped markets recover. Investors have also come to terms with the situation and do not expect a further escalation.

The pound is forecast to continue to strengthen as the situation in Ukraine improves, but any unpredictable turn of events could create currency volatility.  

Energy prices and the currency market

Oil prices have been surging and this creates more risks to global economic growth and increases volatility. Currencies such as the pound and euro, for example, that belong to countries that are net importers of energy have been especially sensitive when energy prices rose. On the other hand, currencies such as the Australian, New Zealand and Canadian dollars which belong to countries that are energy and commodity exporters have strengthened. Safe-haven currencies like the Swiss franc and US dollar have also strengthened.

According to Barclays’ research, the UK is the most energy sufficient currency out of the G10 currencies as it produces 71% of its primary energy consumption needs, with over 80% of the UK’s natural gas imports coming from Norway, and only 15% from Russia. While it is affected by the surge in energy prices, it is not as much affected as other European countries. The OBR said that “higher global energy prices will weigh heavily on a UK economy that has only just recovered its pre-pandemic level.”

Rishi Sunak has pointed out that the Government could intervene on energy bills before the autumn if bills rise sharply again in October. He told BBC Radio 4’s Today programme: “Yes, of course we’ll have to see where we are by the autumn and it’s right for people to recognise that they are protected between now and the autumn because of the price cap.” He added: “I always keep everything under review, and the Government, as it’s shown over the past two years, is always responsive to what’s happening. But I would say with energy prices, you know, they are very volatile, and I don’t think you, I or anyone else has any certainty about what will happen in October right now.”

BoE and interest rates

The ongoing rise in inflation could push the BoE to raise interest rates further, however, the Bank could also exercise some caution as higher rates could slow down economic growth. The currency market is currently pricing in up to 130 points of rate hikes in 2022, but some analysts say the Bank will fail to meet market expectations.

If rate expectations continue, then the pound will remain supported but if any such expectations are cut then the pound will fall. Some analysts have noted that the pound could go lower against the euro if the market raises its bets that the European Central Bank (ECB) will tighten policy at the end of 2022.


Higher-than-expected inflation has helped the pound rise against the US dollar, as markets expect the Bank of England to proceed with further interest rate hikes.

According to the Office for National Statistics, UK CPI inflation rose 6.2% year-on-year in February, more than the 5.9% increase markets were expecting and higher than the 5.5% reported in January. Core inflation rose 5.2% in February, more than January's 4.4% figure. As a result, prices for goods rose, including those for food and games.

UK inflation

UK inflation has surged to a new 30-year high as higher energy, fuel bills and food prices drove the worst cost of living squeeze in decades. That’s the highest inflation reading since March 1992, at a time when household budgets are coming under extreme pressure. Last week, the Bank of England predicted inflation could reach 8% in April and could even go as high as 10% in the autumn when the energy price cap rises again.

The news comes hours before Rishi Sunak presents his mini-budget, as he prepares a fresh package of measures to alleviate inflationary pressures on consumers. He is expected to promise “a faster-growing economy, the security of more resilient public finances, and security for working families as we help with the cost of living.”

Sunak has a difficult task, as with inflation so high, taxes rising next month, and benefits such as pensions rising by 3.1 per cent, household incomes will experience a sharp fall.

Jack Leslie, senior economist at the Resolution Foundation has said that the Chancellor will need to set out a bold response to the situation as “Another sharp rise in inflation last month offers a foretaste of the huge income squeeze coming this year, with inflation likely to hit at least 8 per cent this spring – which could be the highest it’s been in 40 years – along with a second spike this autumn.” Leslie noted that prolonged high inflation “is a complete disaster for living standards. It will mean pay packets continuing to shrink, along with vital income support such as Universal Credit and the State Pension. The Chancellor will need to set out a bold response to this cost of living crisis in his Spring Statement today, starting with ensuring that benefits keep pace with inflation over the coming 12 months, rather than shrink by £10 billion as they are currently on course to do.”

Bank of England rate hikes

Markets have raised their expectations this week for the number of Bank of England rate hikes that are likely to be delivered in 2022, pushing the value of the pound higher. If this continues, then the pound will go higher.

Economists are concerned that inflationary pressures will continue to persist and increase, adding more pressure to the Bank to act.

Pantheon Macroeconomics has reported that higher inflation will stall UK economic recovery as households’ spending power shrinks. Chief U.K. Economist at Pantheon Macroeconomics Samuel Tombs expects the BoE to stop raising interest rates once the Bank Rate is 1.00% in May as further rate hikes will increase the risk of economic recession. The market has priced in up to 138 points of rate hikes for 2022 which means there is room for disappointment if the Bank pauses hiking rates which could also push the pound lower.


In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound has recovered against the euro and US dollar, but some analysts expect it to remain within the same range and not rise or fall remarkably. Markets seem to be a bit more optimistic and expect further Bank of England interest rate hikes. The war in Ukraine continues with little progress being made, and markets are starting to digest the implications of Russia’s aggression in Ukraine.

The pound was one of the worst-performing currencies since the war in Ukraine started and traders have adjusted to this. While some analysts believe the pound will be supported in the near-term, however, if the situation in Ukraine deteriorates, then it could drop.

Uncertainty continues for the pound

  • Ukraine conflict

Market risk appetite has returned modestly, and the pound will continue to benefit as sentiment improves. While the war in Ukraine continues, there is hope that a deal could be reached, as talks between the two sides continue. However, Dmitry Peskov, the Russian Presidential spokesman, said on Monday that the two sides were still far apart. There were also hopes that the two presidents, Ukrainian President Volodymyr Zelensky and Russian President Vladimir Putin would sit and resolve issues, but this looks to be highly unlikely, at the moment.

Analysts have noted that, after the Covid-19 pandemic and Brexit, the Russia-Ukraine conflict is another considerable risk and could stall any upside potential for the pound. The crisis has worsened the outlook for risk currencies such as the pound, with the euro being more vulnerable.

  • Bank of England interest rate hikes

Expectations for further Bank of England interest rate hikes has been a key driver for the pound and continues to lend support to the British currency. The Bank hiked 25 basis points last Thursday, as expected, but the cautious tone of the Bank about the number of rate hikes disappointed markets and pushed the pound lower.

The Bank has warned the market not to expect as many as 120 basis points of rate hikes which were priced in by the market for the rest of the year, as inflationary pressures could impact on economic growth. Some economists feel that it will be much more difficult for Sterling to strengthen following the BoE’s increased focus on inflationary risks to growth.

The pound has recovered recently, however, and the Bank of England remains much more hawkish than other banks, with at least two interest rates expected by most analysts.

Tuesday’s report: UK government borrowing higher than expected

UK government borrowing rose more than expected in February, as higher inflation pushed debt interest payments higher. This is disappointing news for Rishi Sunak the day before he presents his spring statement in the Commons.

The Office for National Statistics said the government’s budget deficit was £13.1bn in February, the second-highest borrowing figure for February since records began in 1993. Higher inflation pushed up interest payments on government debt by more than 50%. The chancellor responded to the higher-than-expected government borrowing by saying:

“The ongoing uncertainty caused by global shocks means it’s more important than ever to take a responsible approach to the public finances. With inflation and interest rates still on the rise, it’s crucial that we don’t allow debt to spiral and burden future generations with further debt. Look at our record, we have supported people - and our fiscal rules mean we have helped households while also investing in the economy for the longer term.”

Economists expect the chancellor to be cautious tomorrow. Samuel Tombs, chief UK economist at Pantheon Macroeconomics said that Rishi Sunak could “announce a limited package of measures, amounting to a net giveaway in 2022/23 of about £13bn, or 0.5% of GDP. That probably would mean that households still will experience this year the biggest annual decline in their real disposable income since the Second World War.”

Wednesday: What to watch

The UK’s CPI numbers on Wednesday are key as the Bank of England (BOE) has raised interest rates by 25 basis points last week. The UK inflation numbers on Wednesday will influence any potential  monetary policy decision the BOE will have to make in its next policy announcement.

The monthly and yearly Producer Prices Index (PPI) Core Output on Wednesday will also be watched, with a preliminary estimate for the monthly PPI Core Output at 0.9%, and an estimate for the yearly PPI Core Output at 10%, higher than the previous 9.3%.


In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound is under pressure as market mood has weakened following renewed concerns over Russia's invasion of Ukraine. The divergence between the Fed and Bank of England (BoE) policy has also hurt the pound and could continue weighing on the British currency.

The BoE hiked interest rates by 25 bps but showed caution regarding further tightening, dampening the pound outlook. Analysts expect the pound to US dollar exchange rate to remain under pressure if it continues trading at a lower level. The pound to euro exchange rate could also struggle to recover this week following the BoE’s cautious tone last Thursday.  

What to watch out this week

  • Andrew Bailey’s remarks

The key event of the week ahead for the pound will be Governor Andrew Bailey’s participation in a panel discussion this Wednesday titled Emerging Challenges for Central Bank Governors in a Digital World, at the Bank for International Settlements Innovation Summit.

  • Inflation figures

On Wednesday, inflation figures for February will also be closely watched as investors would like to see how soon the Bank could raise interest rates again.

Analysts expect the Monetary Policy Committee (MPC) of the BoE to be less optimistic and more passive in the second half of the year, which could drive the pound lower. It is now expected that the pound will be under pressure especially if inflation is higher than expected, and at a time when the BoE is concerned with the risks to growth.

  • Mini budget

Apart from February’s inflation figures and comments from Andrew Bailey, on Wednesday we also get HM Treasury’s announcement of its latest budget update, which will also be analysed by market participants. Chancellor Rishi Sunak is under pressure to announce further financial measures to support households who are suffering from the worst cost of living crisis for at least 20 years.

While the UK was getting ready for the biggest squeeze on living standards, the war in Ukraine has deepened the crisis. The surge in the price of oil has pushed petrol and diesel prices higher. Economists warn that further pressure on food and energy prices could push inflation even higher. With domestic energy prices and taxes already rising in April and continued volatility in commodity markets, the Chancellor of the Exchequer is facing even more pressure to alleviate the pain when he reveals the springtime mini-budget on Wednesday.

Now, the problem is not only the poorest households, as due to higher and persistent inflation families who needn’t worry about the cost of living are now also facing difficulties. The chancellor is expected to extend his earlier £9bn package of support for energy bills, which has been reduced by higher inflation. However, speaking to the Conservative conference in Blackpool, he avoided clarifying how he might help households with bills and admitted that global inflationary pressures and higher prices were out of his control. The chancellor said he had “enormous sympathy for what people are going through”, but “I can’t solve every problem. No government can solve every problem, particularly when you’re grappling with global inflationary forces. They are somewhat out of my control.”

Markets will await to see how Sunak will make a difference in his statement on Wednesday, whose popularity rankings have grown during the pandemic following a huge economic support package. As he said on Sunday, “I will stand by [the people] in the same way that I have done over the past couple of years. Where we can make a difference, of course we will.”

GBP/USD recovered some of its earlier losses as investors tried to assess the latest data releases from the UK. The pound’s reaction to the UK data was muted. The ONS reported that the UK GDP grew by 1% in Q4, compared to the market expectation of 1.1%, and Industrial Production expanded by 0.4% on a yearly basis. The larger than estimated traded deficit did not impress markets and did not provide any momentum to the GBP/USD pair.

The pound’s recovery was the result of a weaker US dollar as retreating US Treasury bond yields stopped any gains for the greenback and helped the pound rise. Market participants now look forward to the US release of the Preliminary University of Michigan US Consumer Sentiment Index. The release, along with market sentiment and US bond yields will be the main drivers for the GBP/USD currency pair.  

UK GDP report

Despite the disruption caused by the Omicron variant in December, the UK economy continued to grow in the final quarter of 2021. The UK GDP report published by the UK's Office for National Statistics (ONS) revealed that the UK economy grew by 1% on a quarterly basis in the fourth quarter. This reading came in slightly lower than the market expectation of 1.1% but failed to trigger a market reaction.

The ONS said: “The largest contributors to this quarterly increase were from human health and social work activities driven by increased GP visits at the start of the quarter, and a large increase in coronavirus (COVID-19) testing and tracing activities and the extension of the vaccination programme.”

Darren Morgan, director of Economic Statistics at the ONS, said GDP fell back slightly in December but “grew robustly across the fourth quarter as a whole with the NHS (National Health Service), couriers and employment agencies all helping to support the economy.”

UK posts the fastest growth in the G7 in 2021

The UK economy grew 7.5% in 2021, the fastest since the 1940s, after it recovered from the pandemic. It is the fastest growth since the second world war, despite the disruption caused by Omicron in December. It is ahead of the US (5.7% growth), France (+7%), Germany (+2.7%), and Italy (+6.5%) as well as the EU (+5.2%), and possibly Canada and Japan who have not released their 2021 GDP data. But, the UK is recovering from a lower base, since its economy contracted 9.4% in 2020, much lower than other G7 members.

A resilient economy

Chancellor of the Exchequer, Rishi Sunak praised the government’s support for helping the economy say strong and grow. He said: “Thanks to our £400bn package of support and making the right calls at the right time, the economy has been remarkably resilient; with the UK seeing the fastest growth in the G7 last year and GDP remaining at pre-pandemic levels in December. I’m proud of the resolve the whole country has demonstrated, and proud of our incredible vaccine programme which has allowed the economy to stay open. We’re continuing to help the economy rebuild through our Plan for Jobs, boost for business investment and support for households with the cost of living.”


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The pound fell on Wednesday despite the UK budget statement, which was in line with expectations. There was no indication that Chancellor of the Exchequer Rishi Sunak’s budget announcement contributed to the market movement. The fall is possibly linked to a drop in the yield of long-duration UK government bonds and shows that markets expect the government to reduce borrowing in the coming years.

2021 Budget

In general, news about today’s budget statement was positive about the economic outlook, regardless of the fact that there was no fiscal stimulus announced. Sunak, said he had asked the Bank of England to remain committed to controlling inflation and keeping it low and stable, as anything above 2.0% will not be favourable in the long term. Next Thursday, with the Bank of England meeting, pound volatility will be expected.  

Rishi Sunak said that his budget delivers a stronger economy, stronger growth, public finances and employment, so that it is possible to begin building the economy post-pandemic. As he noted: “Let there be no doubt: our plan is working.”


Sunak said overall spending will increase by £150 billion, the "largest increase in a century", as the economy is expected to grow and expand 6% in 2022. The chancellor said that forecasts from the Office for Budget Responsibility (OBR) show the economy will grow by 6.5% this year, 6% next year, 2.1% in 2023, 1.3% in 2024, and 1.6% in 2025. Unemployment is forecast to reach 5.2%, down from a forecast of 12% last year.


The chancellor said inflationary pressures are currently impacting on the UK economy and the government will make sure to support households. The Office for Budget Responsibility (OBR) is expecting inflation to be around 4% next year.


Sunak said that will set new “fiscal rules” for public finances. During “normal times” the state should only borrow to invest in growth while balancing everyday spending. In the current financial year 2021-22, borrowing will be 7.9% of GDP, and will fall to 3.3% in 2022.

Employment and skills

The chancellor said the government will raise government spending on skills and training by £3.8bn. The government will create a UK-wide numeracy service called Multiply to help 500,000 adults. This is part of the government’s commitment to improving lifelong learning and productivity. While a lot of this has already been announced, the 43% increase in spending is considerable.

Business taxes

The bank surcharge will be cut from 8% to 3%. Business rates will be changed to help companies and a new 12-month relief will be provided to companies to invest in their premises. The incentives are worth £750m. Sunak said that 2022’s intended increase in the business rates multiplier will be terminated. There will also be a 50% business rate discount for companies in retail, hospitality and leisure. The cut is worth £1.7bn. The chancellor highlighted that “This is the biggest single year tax cut to business rates in over 30 years.”

Taxation and universal credit

Sunak also announced that the taper rate in universal credit will be cut from 63p to 55p. This will be worth more than £2bn. The work allowance will be increased by £500.  In regards to taxes, Sunak confirmed: “By the end of this parliament I want taxes to be going down, not up.”

The reforms to the universal credit system will enable only those in work to keep more of what they own and will encourage employment.

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound rose on Tuesday against both the euro and the US dollar, as stock markets increased, and expectations for an early November rate hike by the Bank of England remained strong. This is the highest level since the pandemic started in March 2020. If the Bank of England proceeds to an early rate hike, then markets will not be disappointed and the pound will rise further, as many analysts suggested. However, if it strikes a more cautious tone and reduces expectations for further rate hikes in 2022, then the pound could fall.

A hawkish statement by the Bank of England suggesting a faster cycle of hikes than is currently expected might boost the pound further, but this is not anticipated.

Interest rates

If the Bank of England raises interest rates as soon as the 4th of November, then the UK central bank will be the first major central bank to raise rates ahead even of the European Central Bank (ECB). The pound rose against the dollar, but the gains were not substantial as the US Federal Reserve is on target to raise interest rates in 2022 with the November policy meeting likely to confirm this.

The lower number of Covid-19 cases has helped boost market sentiment and has given the Bank of England further evidence that the economy has the potential to grow as we come to the end of the year.

Current and potential obstacles

However, Britain's weak economic data, such as Friday's unexpected drop in retail sales has capped further gains. UK growth momentum is also weakening. There are also concerns about potential tax hikes that could be announced on Wednesday's budget statement, alongside tensions between the EU and the UK post-Brexit provisions relating to the trade between Britain, Northern Ireland, and the European Union member Ireland.

A possible headwind for the pound is the failure of the negotiations between the two sides over the Northern Ireland protocol, as Britain has threatened to take unilateral action if talks fail. #

Rishi Sunak’s budget announcement on Wednesday

Traders are now awaiting finance minister Rishi Sunak's budget statement on Wednesday. Markets might be already aware of his plans for higher corporation tax and national insurance contributions, but the devil is in the details. He is expected to end the public sector pay freeze for millions of workers and there has been speculation that the minimum wage for those aged 25-plus could increase from £8.91 an hour to £10 before the next election. For the NHS, there have also been announcements for a £5.9bn for NHS backlogs, diagnostic services and elective surgeries funding, while a £2.1bn is going to improve IT across the NHS. Another commitment has been for £5bn on health research and development over three years. A total of £850m has been promised to inject new life into the arts as a “post-pandemic funding boost.” £700m has been promised to be spent on the new post-Brexit borders and immigration system, and a new maritime patrol fleet. Among his other pledges, is a six-month extension to the COVID recovery loan scheme to June 2022.

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

Budget 2021: Pound to Remain Sensitive

Rishi Sunak’s budget has unnerved the pound as investors have been waiting to hear the details. A bullish scenario for the UK currency will be the announcement of more financial support to help recovery, while any attempt to balance the book that will affect growth will hurt the pound.

Main Points: What did Rishi Sunak say?

The chancellor said that he would do “whatever it takes” to help the economy recover from the pandemic as the damage has been great. It is estimated that more than 700,000 people lost their jobs, the economy shrank by 10% and borrowing has been at its highest. Sunak noted: “It’s going to take this country, and the whole world, a long time to recover from this extraordinary situation.”

He has underlined his own and the government’s desire to be clear and transparent about fixing the public finances, and about what plans they have in the future.


Expectations are for a quick recovery by the middle of next year. However, the economy will still be 3% smaller even in 5 years from now. GDP will grow by 4% this year, and by 7.3% next year. The coronavirus has profoundly affected the economy and Sunak’s comments suggest that tax rises should be expected in the near future.


The chancellor said that unemployment will reach 6.5%, which will be much less than originally forecast, with 1.8 million fewer people expected to lose their jobs. The furlough scheme will continue until the end of September. Employees will receive 80% of their wages until the end of the scheme but businesses will have to contribute 10% in July and 20% in August and September. The self-employment income support scheme will also be extended and the £20-a-week uplift in universal credit will be extended for six months.

Grants for Businesses

Sunak announced a £5bn restart grant for businesses and noted that the total direct cash support to businesses has reached £25bn. The Treasury is also starting a new loan scheme with loans ranging between £25,000 and £10m.


£352bn will be the Covid support package this year and the next and Sunak underlined the amount that was spent to help the economy recover.


Sunak said the budget deficit will be £355bn this year and will continue at high levels with the underlying debt rising indefinitely. He said that due to his actions, borrowing will fall to 4.5% of GDP in 2022-23, then to 3.5% in 2023-24, and 2.9 and 2.8% in the following two years. He added: “It’s going to be the work of many governments over many decades to pay it back, just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked.”

Corporation tax

In April 2023, the rate of corporation tax will go up to 25%. But Sunak explained that this will affect businesses that are making profits of more than £250,000 and will be taxed at the full 25% rate. Companies with profits of less than £50,000 will remain at 19%.

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