Surging sterling shakes off Britain's budget blues
EWU•Sterling has gained almost 2.6% against the euro and about 1% against the US dollar over the past month ahead of Britain's budget. Markets have added a quarter-point Bank of England rate hike to their one-year outlook, while the UK budget deficit for the first six months was more than £4 billion lower than a year earlier.
1. Sterling gains ahead of budget
Sterling is approaching 18-month highs against the euro and its strongest levels against the dollar in more than four weeks. Over the past month, it has risen almost 2.6% against the euro and about 1% against the dollar, while the premium on 10-year UK gilt yields over German debt has increased about 25 basis points to nearly 2 percentage points.
2. Fiscal outlook in focus
The upcoming budget comes as the government seeks to keep spending within its fiscal rules. UK debt topped £3 trillion, but the budget deficit for the first six months was more than £4 billion lower than a year earlier, and the debt-to-GDP ratio fell from 12 months ago as growth strengthened. Analysts cited in the article expect a relatively restrained budget, while warning that a possible snap election next year could bring policy uncertainty.
