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Oh Darling what have you done? The Budget brought gasps and gallows humour from the World First research team yesterday as the state of the country’s finances were shown to be in a perilous state.

With the announcement that the Government and DMO will be issuing gilts to the tune of £476bn over the next 5 years sterling was slapped lower as investors declined to support GBP or its government; GBP/EUR fell into 1.11s and GBP/USD the 1.44s with sterling also losing ground against the CHF, ZAR and SEK in particular. It is not that long ago of course since we had the UK’s first failed gilt auction since 1995 and debt commentators are offering short odds on another once soon.

The pieces of data that will have had economists putting their heads in their hands were the predicted GDP figures and the debt as a percentage of GDP ratios. Now it is tradition that the Chancellor can partake of an alcoholic drink while delivering the budget; the fantastical nature of these figures suggested that he had foregone the drink and moved straight to the intravenous injection of heroin. Or of course he used that age old prediction tool to formulate the debt figures: No 11 Downing Street’s dart board.

Gordon Brown’s ‘golden rule’ of fiscal responsibility was broken earlier this year and now seems like meaningless guideline. The Budget predicts that by 2013-14 debt as a percentage of GDP will rise to 79%; nearly twice Brown’s target rate and higher than that of economic powerhouses like Bulgaria, Nigeria, Ghana and Ecuador. The IMF also poured scorn on the government’s prediction of a GDP fall in 2009 of only 3.5%; most commentators have been around 3.9% to 4.2%.

I won’t go on about the tax increase and the inevitable brain drain, nor shall I point out that the government’s trainee and apprenticeship scheme is a cunning way of not declaring people as unemployed. The Budget was fantasy and the rabbit he pulled from the hat had myxomatosis.

Even before he stepped up to the dispatch box the dark clouds had started to roll in; unemployment in the UK climbed to £2.1m signalling the 13 consecutive month of net job losses. The Bank of England minutes were somewhat overshadowed by the Budget and the record showed that everyone was in favour of holding rates at 0.5% and the QE figure of £75bn.

After the vomit of UK data yesterday it is a Euro and US day today with hopefully weak figures allowing sterling some fight back.

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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. 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.

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