The Spending Review Preview
Recent spending reviews haven’t had much impact on the markets. The most significant part of the review for the Pound is expected to be the new OBR growth forecasts.
Share this:
The spending review will only cover 2021 -22 given the clouded outlook from the covid pandemic, rather than the usual 4 years. Whilst the covid crisis has seen Chancellor Rishi Sunak present at least 5 mini statements since March, the spending review will be the most significant
Recent spending reviews haven’t had much impact on the markets. The most significant part of the review for the Pound is expected to be the new OBR growth forecasts.
Recent spending reviews haven’t had much impact on the markets. The most significant part of the review for the Pound is expected to be the new OBR growth forecasts.
OBR economic outlook
After taking into consideration Rishi Sunak’s announcements on Wednesday, the Office of Budget Responsibility will provide an outlook for the economy. At the start of the crisis the OBR expected a -13% contraction in the UK economy this year. There is a possibility that this forecast will be upwardly revised. That said, with the UK now back in lockdown 2.0 a double-digit GDP contraction of -11% could well still be on the cards.
After taking into consideration Rishi Sunak’s announcements on Wednesday, the Office of Budget Responsibility will provide an outlook for the economy. At the start of the crisis the OBR expected a -13% contraction in the UK economy this year. There is a possibility that this forecast will be upwardly revised. That said, with the UK now back in lockdown 2.0 a double-digit GDP contraction of -11% could well still be on the cards.
Any comments regarding long term scaring should be closely monitored. The OBR are likely to estimate the scale of the hangover from the covid pandemic. In the summer they predicted that the UK economy would still be 3% smaller in 2025.
The Chancellor is not expected to announce any fresh tax cuts or public finances targets but will instead highlight the size of the hole in public finances that will at some point need to be filled by improved economic performance, spending cuts or taxes hikes or a combination of all three. The sheer size of this could unnerve Pound traders.
Public sector pay. Saving rather than spending is expected to dominate on Wednesday. Rumours are swirling that public sector pay could be in the firing line with pay freezes for all except front line NHS staff. This is likely to meet a frosty reception.
Levelling up the North & South of the UK could be back on the agenda and infrastructure spending is key here. Stocks to watch Carillion, Kier, Morgan Sindall
A boost to defence spending to the tune of £16.5 billion has already been announced, defence stocks bounced accordingly so we aren’t expecting too much more movement there. Stocks BAE Systems, Rolls Royce & Meggitt.
Brexit related spending with the end of transition period just weeks away Brexit related spending decisions will be high up the agenda. The UK government has already spent £8 billion on Brexit preparations and with no trade deal yet agreed more spending here could be essential.
Let’s not forget that Bank of England Governor Andrew Bailey said this week that a no trade deal Brexit could be as economically damaging long term as the covid pandemic.
GBP/USD Chart
GBP/USD is advancing + 0.2% around 1.3350, having broken through resistance at 1.3310. The pair trades comfortably above 50, 100 & 200 sma on 4 hour chart, suggesting their could be more upside on the cards. Immediate resistance can be seen at 1.3480 (high early Sept). Immediate support can be see 1.3250 50 sma, prior to horizontal support at 1.32
The spending review will only cover 2021 -22 given the clouded outlook from the covid pandemic, rather than the usual 4 years. Whilst the covid crisis has seen Chancellor Rishi Sunak present at least 5 mini statements since March, the spending review will be the most significant
Recent spending reviews haven’t had much impact on the markets. The most significant part of the review for the Pound is expected to be the new OBR growth forecasts.
Recent spending reviews haven’t had much impact on the markets. The most significant part of the review for the Pound is expected to be the new OBR growth forecasts.
OBR economic outlook
After taking into consideration Rishi Sunak’s announcements on Wednesday, the Office of Budget Responsibility will provide an outlook for the economy. At the start of the crisis the OBR expected a -13% contraction in the UK economy this year. There is a possibility that this forecast will be upwardly revised. That said, with the UK now back in lockdown 2.0 a double-digit GDP contraction of -11% could well still be on the cards.
After taking into consideration Rishi Sunak’s announcements on Wednesday, the Office of Budget Responsibility will provide an outlook for the economy. At the start of the crisis the OBR expected a -13% contraction in the UK economy this year. There is a possibility that this forecast will be upwardly revised. That said, with the UK now back in lockdown 2.0 a double-digit GDP contraction of -11% could well still be on the cards.
Any comments regarding long term scaring should be closely monitored. The OBR are likely to estimate the scale of the hangover from the covid pandemic. In the summer they predicted that the UK economy would still be 3% smaller in 2025.
The Chancellor is not expected to announce any fresh tax cuts or public finances targets but will instead highlight the size of the hole in public finances that will at some point need to be filled by improved economic performance, spending cuts or taxes hikes or a combination of all three. The sheer size of this could unnerve Pound traders.
Public sector pay. Saving rather than spending is expected to dominate on Wednesday. Rumours are swirling that public sector pay could be in the firing line with pay freezes for all except front line NHS staff. This is likely to meet a frosty reception.
Levelling up the North & South of the UK could be back on the agenda and infrastructure spending is key here. Stocks to watch Carillion, Kier, Morgan Sindall
A boost to defence spending to the tune of £16.5 billion has already been announced, defence stocks bounced accordingly so we aren’t expecting too much more movement there. Stocks BAE Systems, Rolls Royce & Meggitt.
Brexit related spending with the end of transition period just weeks away Brexit related spending decisions will be high up the agenda. The UK government has already spent £8 billion on Brexit preparations and with no trade deal yet agreed more spending here could be essential.
Let’s not forget that Bank of England Governor Andrew Bailey said this week that a no trade deal Brexit could be as economically damaging long term as the covid pandemic.
GBP/USD Chart
GBP/USD is advancing + 0.2% around 1.3350, having broken through resistance at 1.3310. The pair trades comfortably above 50, 100 & 200 sma on 4 hour chart, suggesting their could be more upside on the cards. Immediate resistance can be seen at 1.3480 (high early Sept). Immediate support can be see 1.3250 50 sma, prior to horizontal support at 1.32
Latest market news
Open an account in minutes
Experience award-winning platforms with fast and secure execution, and enjoy tight spreads from 0.5 pts on FX and 0.3 pts on indices.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
GBPUSD Analysis Pound holds firm after BoE decision
The pound sterling has started to show relevant strength against the U.S. dollar. At the moment, GBP/USD has gained slightly more than 1.3% in the short term, reflecting an important buying bias.
British Pound Price Action Setups: GBP/USD, GBP/JPY
GBP/JPY has flown up to a fresh 18-year high and even with a recent bout of USD-strength, GBP/USD has held up relatively well.
EUR/USD, FTSE 100 Forecast: Two trades to watch 1507
EUR/USD rises after weaker US CPI, PPI up next. FTSE 100 falls as weak China GDP data hits miners.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.forex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.