The pound fell by 1.83 cents against the US dollar yesterday after concerns rose about the future health of the UK economy following Alistair Darling’s budget. With Britain entering its worst economic downturn for over 60 years, Darling predicted that the economy would shrink by 3.5% in 2009 and announced that government borrowing would reach £175 billion. With fiscal debt set to increase by 12% of GDP in the 2009/2010 year, there are worries about how well Britain will be able service its obligations in the future. Because of this, one can expect any news of a ratings agency review of Britain’s credit worthiness to be met with a significant selling of the pound. News of the new 50% tax level for those earning in excess of £150,000 also saw sterling come under pressure, as some suggested that a ‘brain drain’ was the last the thing the struggling City needed. One upside of a weak pound is that it should encourage foreign investors to buy the £220 billion of government bonds that the treasury will issue over the coming year to fund their spending plans.
It was announced in the US yesterday that house prices had increased by 0.7% in February, positive news for the American economy where the housing market is very important.
In today’s trading the pound has pared some of yesterday’s losses ahead of the announcement of CBI industrial trends data in the UK and initial jobless claims, continuing jobless claims and existing home sales figures in the US.
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