Sterling held onto its gains from yesterday and negotiated what could have been a tricky day with the Bank of England minutes and Budget being released within hours of each other. The Bank of England minutes were almost a carbon copy of February’s, with the committee again voting against additional QE by 6 votes to 3. We all know that Mervyn King would like to see another round of QE worth £25bn, but as yet he seems unable to sway his fellow policy makers. This was relatively good news for Sterling as a 5/4 vote against would have signalled an almost inevitable increase in QE next month. Mervyn King had previously never been outvoted in consecutive months so it seems the committee members are happy to wait for the new governor before acting. I would be surprised if we don’t get another bout but I suspect this will come later on in the year, possibly around June/July.George Osborne called for a more active B of E in his budget today and Mark Carney’s first act as the Governor may to be to announce a new round of stimulus or as the chancellor put it “unconventional monetary instruments”.

We saw Sterling slide against the Euro to 1.1650 and the Dollar to under 1.51 in the run up to the budget announcement and it looked like as though we would see yesterday’s gains erased. Indeed the tone to begin with was bleak especially the revised growth forecast of 0.6% from the OBR. However as the speech evolved nuggets of positivity began to emerge firstly with a rise in infrastructure spending of £3bn which hopefully will give the flagging construction sector a boost. The budget seemed very much to revolve around business and trying to make the UK attractive to start ups and international companies. The chancellor will cut corporation tax to 20% by April 2015 and employer’s national insurance by £2,000 meaning 450,000 small firms will no longer have to pay it. The idea of trying to make Britain more competitive is the right approach given the need to diversify economically and not rely so much on financial services to keep the economy ticking over.

These positive footnotes on the budget meant Sterling was able to hold firm against the major currencies and we saw GBP/EUR back above 1.17 and GBP/USD above 1.5150, meaning the focus at least for the next few days can shift back onto Cyprus and the continuing problems in the Eurozone.

If you would like to discuss the budget further please do not hesitate to contact me.

Written by David McNeill