This week sees a Labour politician stand at the ballot box in the House of Commons and not talk about counter-terrorism police security blunders, spousal pornography or the abolition of spin doctors in the halls of power. Alasdair Darling will this week announce a budget that could be exactly that; budget; a viral picture of the Chancellor standing outside No.11 Downing St holding a Tesco bag proudly aloft is already doing the rounds I’m told. Not since the ‘People’s Budget’ delivered 100 years ago by David Lloyd George does an economy need such a shot in the arm. Unfortunately Darling is armed with the equivalent of an economic water pistol and if I was to continue the metaphor (oh go on – Ed) he’d probably shoot himself in the foot. So what can we expect and what effect will it have on sterling?

The main differences from the pre-budget report will be the sheer size of the gap in growth prospects between now and what was forecast in November’s pre-budget report. Most analysts predict that the UK economy will shrink by around 3.9% in 2009 as a whole; this differs from Darling’s earlier prediction of a range between -0.75% and -1.25%. Its impact will, we feel, be little as a lot of negative sterling sentiment is already priced in to the market; everybody knows the economy is in the khazi so talking about it more is not likely to make it worse. A prediction that the recession will likely end by the end of the year is also likely.

We have been one of the most bearish commentators on the UK unemployment market and believe that the picture is not likely to improve until H2 2010. Unemployment normally trends at least 6 months behind other economic indicators and claimant counts are still rising at a heady pace. With that it is unlikely that any unemployment figure predicted by the Chancellor will have much effect on GBP.

The scope of this budget is unlikely to be major; we simply can’t afford it and as such this Budget will be about limiting the resurgence of an emboldened Conservative party than a grand plan, a new deal, a permanent revolution. Darling will be minded not to spook the markets at a time at which the latest bull trend is already looking fragile.

The S&P has risen by around 25% in the past 5 weeks alongside large rises on other global bourses. Much like we have seen on sterling crosses profit taking after such a rise is almost inevitable but while near term losses are likely the improvements in lending, the housing market and risk conditions should see the upward trend continue.

———————

Please feel free to contact me (jeremy.cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our:

Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.

To view any past or present currency blogs please click on the following link www.worldfirst.com/blog

Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.

Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.

There are a number of charges that we will levy if you enter into a hedging strategy.  The nature of these charges depends upon the specific strategy, but may include an up front premium .  We recommend that you read carefully the details of these charges which are set out alongside the description of each strategy.

You Might Also Want To Read

• World First sees 54% more people buying euros
• World First Foreign Exchange 12 March 2010: Data Needed to Jump-Start Markets
• World First NZD/AUD Weekly Update - 12th January
• World First Currency Research Blog Contributors
• A bleak outlook for the economy pushes the Bank of England to cut rates
• Profit Takers Take Pound Lower - World First’s Morning Update - 13th January 09
• World First’s Sterling Update - 12th January 2009 - Method in the Madness
• Risk Jumps On Poor US Jobs Data - World First’s Morning Updates - 12th January 2009
• Rand Devalues and Political Instability Continues - World First’s Rand Update - 20th October 2008
• World First in the press: New Zealand Outlook July 2008
• World First’s Morning FX Update - 31st July 2008
• World First Foreign Exchange 10 December 2009 Update: Darling outlines road to recovery
• World First wins prestigious national award
• Sterling Holds After BOE Cut - World First’s Morning Update - 9th January 2009
• World First Foreign Exchange NZD / AUD Update: 15 February 2010
• Sterling Slips As Trade Balance Widens - World First’s Morning Update - 14th January 2009
• World First in: CGA Magazine October/November 2009 Issue
• World First Foreign Exchange 08 February 2010: Greece, UK Polls Ensure Lower Open For GBP
• World First Foreign Exchange 24 November 2009: Market Close Podcast
• World First Foreign Exchange NZD / AUD Update: 5 October 2009
• Sterling Helped By Global Action - World First’s Morning Update - 14th October 2008
• World First Foreign Exchange Podcast - 27 August 2009
• Volatility Continues as Emerging Markets Feel the Pressure - World First’s Sterling Update - 20th October
• World First Foreign Exchange 03 February 2010: Sterling Pinned Back, Euro Strong on Risk Flows.
• World First Foreign Exchange 06 January 2010: Market Close Podcast
• Wednesday 14th May
• World First in: BASC Magazine October 2009 edition
• Central Banks Announce Dramatic Moves to Combat Financial Crisis. Morning FX Update - 19th September
• GBP Through 1.14 As ECB Sits On The Horizon - World First’s Currency Exchange Morning Update - 7th May 2009
• World First’s Morning FX Update - 17th June 2008
• World First NZD/AUD Weekly Update - 19th January
• World First NZD/AUD Weekly Update - 15th September
• World First on dofonline.co.uk - 4 June 2009
• World First in the press: investmentinternational.com 20 January 2010
• Euro moves to new highs
• World First Foreign Exchange 05 February 2010: Market Close Podcast
• World First Foreign Exchange 17 September 2009 Update: Sterling Fighting Against The Dying Of The Light
• World First Foreign Exchange 23 December 2009 Update: UK GDP Disappoints, Sterling Hits 2 Month Low
• World First Foreign Exchange 27/07/09 Update: Equity market rises continue to help risky currencies higher
• World First Currency Podcast - 17 September 2009
• World First Foreign Exchange 04 February 2010: Is QE Over?
• World First Foreign Exchange 06 January 2010 Update: UK Gilt Sales Pressurise Pound
• UK Inflation Surprises To The Upside, ZEW Also - World First’s Currency Exchange Morning Update - 17th June 2009
• World First Foreign Exchange 25 November 2009: Market Close Podcast
• World First NZD/AUD Weekly Update - 6th April 2009
• Euro Weak As We Wait For ECB - World First’s Morning Update - 15th January 2009
• Sterling Higher On IP, Japanese GDP Helps Risk Profile - World First’s Currency Exchange Morning Update - 11th June 2009
• World First in Growing Business magazine - November 2008
• World First UK Ltd is granted FSA Payment Institution status
• Week Ends With Further Questions Needing Answers - World First’s Morning Update - 27th February 2009