GBP: Osborne budget highlights lower growth problem – MUFG

By FXStreet Derek Halpenny. European Head of GMR at MUFG, notes that the pound weakened modestly yesterday (well until the FOMC anyway!) in response to a broadly fiscally neutral budget by Chancellor Osborne that was without any major surprises and failed to alter the expectations in regard to monetary policy.

Key Quotes

“What the budget details did highlight was the damage a lower growth profile is doing to the government’s fiscal objectives. The OBR came in for some criticism when revisions announced in the Autumn Statement last year gave Chancellor Osborne GBP 27bn of extra funds to play with but yesterday the OBR acted the other way with revisions to productivity, wages and inflation which took GBP 56bn away from the Chancellor.

As a result, the second of the three fiscal objectives was broken in this budget with the government projecting an increase in the overall debt-to-GDP ratio. The government had promised that this ratio would fall each year of this parliament. The key factor in that promise being breached was the OBR changes, resulting in a lower growth profile. Real GDP growth was 0.1ppt lower at 2.2% last year and was expected to be 0.4ppt and 0.3ppt lower at 2.0% and 2.2% …read more

Source:: FX Street