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Thursday, March 30, 2023

Pound holds gains after delay to economic plan

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The pound has held on to its recent gains after the economic plan was delayed until 17 November.

Sterling is currently trading at $1.157, up almost 0.9% on the day.

The currency has rallied in recent days as investors welcomed the appointment of Rishi Sunak as prime minister and the dollar fell.

“The delay to the economic statement is disappointing but understandable,” said Jane Foley, a currency strategist at Rabobank.

“The markets have largely shrugged this off, because they understand we have a new chancellor, we have a new PM, and it’s quite likely that they do need a bit more time to nail things down and get these numbers right,” she said.

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Financial markets had been rattled by fears over the economy in recent weeks.

Last month, sterling plunged to a record low against the dollar and government borrowing costs rose sharply in the aftermath of former Prime Minister Liz Truss’s mini-budget.

Investors were spooked after then-Chancellor Kwasi Kwarteng promised major tax cuts without saying how they would be paid for – something Mr Sunak had warned about during this summer’s Tory leadership contest.

Mr Sunak, a former hedge fund manager, is seen as a safer pair of hands by investors and has pledged to fix “mistakes” made under Liz Truss’s leadership.

“There’s no doubt there’s a relief rally going on, that’s helping the pound,” said Ms Foley.

“Investors have more confidence in the new prime minister, and in his chancellor, than they did his predecessor.

“But the pound’s strength is also being driven by dollar weakness. There was a broad-based sell-off in the dollar in the last few days, thanks to weaker economic data.”

New Chancellor Jeremy Hunt – who reversed almost all of Ms Truss’s tax cuts – will keep his job in the new cabinet.

On Wednesday, it emerged that his statement for the UK public finances will now be announced two weeks later than planned.

The economic plan was due next Monday, but will now take place on 17 November as a full autumn statement.

Mr Hunt said the delay would ensure it is based on the “most accurate possible” economic forecasts.

On Monday, Shevaun Haviland, director general of the British Chambers of Commerce, warned that the country “cannot afford to see any more flip-flopping on policies”.

“The political and economic uncertainty of the past few months has been hugely damaging to British business confidence and must now come to an end,” she said.

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