- Coalition is âgambling that private sector will step in and plug the gapâ in jobs market
Sterling crept up this afternoon against the dollar after Chancellor George Osborne unveiled controversial budget cuts in a bid to address the UKâs fiscal deficit. The pound rose to around $1.5743, ending the speech at $1.5728. It fell slightly against the euro, to 1.1355.
Sterling had fallen to a near-four month low against the dollar earlier today after Bank of England meeting minutes showed one MPC member had voted for further quantitative easing. High public borrowing figures also put the pound on the backfoot, as borrowing rose to Â£15.6 billion last month. Analysts had expected to see a fall to Â£14.2 billion.
Mark Bolsom, Head of the UK Trading Desk at Travelex Global Business Payments says, âThe Coalition is gambling that the private sector will step in and plug the gap in the jobs market but there is no guarantee that this will be successful. And whilst the MPC are talking about supporting the private sector with further quantitative easing, this so far does not have majority vote. Ultimately, if the private sector does not step forward to plug the gap in jobs; the UK will fall back into recession and sterlingâs value will plummet.â
On market reaction, Bolsom commented, âMarkets have been extremely volatile this morning as austerity fears sparked knee-jerk reactions from many businesses. However in spite of their last minute concern, Osborneâs announcement is yet to fuel a market reaction and in fact, sterling gained against the dollar during his speech. This is fairly unsurprising, given that most of the bad news will have been priced in and it will take the markets a while to digest the sheer scale of the cuts.â
Bolsom concludes, âIt is crucial now to sterlingâs strength - and the Coalitionâs credibility - that credit rating agencies endorse Osborneâs cuts.â