Fighter: 2 (Sterling Falls)

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British consumer spending grew at the slowest pace in more than a year last month, reflecting concerns about the cost of living in the run-up to Christmas, according to a survey released on Tuesday. Lengthy negotiations and uncertainty over UK firms’ future access to EU markets following a vote to leave in the upcoming referendum on EU membership would weigh on confidence and delay investment decisions,” the agency says in an update. “This would have a short-term economic cost, although the precise impact would be highly uncertain.” In simple terms, investors are worried about the UK’s economic prospects if it leaves the EU and so they are more reluctant to hold sterling-denominated assets. Even before the referendum outcome is known the economy could suffer, say economists. Businesses do not like uncertainty and so exports, investment and overall growth could all be hampered, they say. Economists are not unanimous about a Brexit being negative for the economy, with some making the point that the UK could end up better off in the long term. But currency markets focus on near-term risks. The chancellor was clear this will mean “necessary higher borrowing in the short-term whilst ensuring monetary stability and fiscal discipline over the medium term”. He committed to “ensuring the economy grows faster than our debts and keeping debt as a proportion of our economy on a downward path”.

They fear that a vote to leave the EU could hurt investment in the UK, dampen exports and thereby hit overall economic growth. Will there be any political decisions that contradict the contracts? Yes, we won’t fulfil them. We will not supply anything at all if it contradicts our interests. The vote is likely 6/3 for 25/0, with Cunliffe joining Dhingra and Tenreyro in voting for a hold. Inflation projections will probably be tweaked slightly, though this should have limited policy implications given the substantial uncertainty bands around the projections," he adds.

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This largely reflects our reassessment of the effect of demographic shifts in the composition of the working population toward younger and older age groups who work shorter hours on average,” stated OBS. Hunt’s budget is a lot more fiscally responsible and still managed to cut employee national insurance from 12% to 10%, which is the main talking point. As per the Treasury statement: The US dollar is broadly higher following a lower-than-expected reading on Unemployment Claims. This has pushed EURUSD lower to 1.087 from a Tuesday high of 1.096. GBPUSD is also lower and showing relative weakness compared to other G7 currencies following the Chancellor’s budget statement. EURGBP is 0.15% higher at 0.8715.

As the chart below shows, 71% of revenues generated by FTSE 100 companies come from outside the UK. The strength of sterling against the euro is also important given the large chunks of revenue accounted for by France, Germany, Italy and other eurozone countries.

UK’s Autumn Budget Delivers Tax Cuts and Avoids the Debacle of 2022. Sterling Slightly Lower on OBS Downgrades to Growth and Employment

British expats will also suffer from a weaker pound. The hundreds of thousands of Britons living in Spain and France who depend on salaries or pensions paid in sterling will see their purchasing power fall in their adopted nations. How does a weaker pound affect businesses? We would only have one thing left to do: as in the famous Russian fairy tale, we would sentence the wolf’s tail to be frozen. In a research note entitled “You ain’t seen nothing yet”, the bank comments: “The role of Brexit in steering recent pound price action can be likened to a rollercoaster warming up with some small twists and turns before an inevitable sharp drop.” We face extraordinary economic challenges in the coming weeks and months and I know that families and businesses across the UK are worried. The chancellor and the governor agreed to re-instate weekly meetings – starting with bi-weekly meetings in the first instance - and coordinate closely to support the economy over the coming months.