The UK has a newly-appointed Chancellor of the Exchequer in Rishi Sunak, a 39-year-old Oxford graduate and Conservative MP for Richmond. His first budget will be a test of will against a backdrop of rising fear about the economic impact of the coronavirus scare.
The fresh face at the Treasury had barely got his feet under the desk however before being dragged into a Twitter storm after he posed for a picture with a bag of Yorkshire Tea two weeks ago, forcing the tea company to deny he was endorsing their product.
So, reading the tealeaves, what can we expect when the new chancellor delivers his first budget on March 11 and how might this affect the strength of the Pound?
It’s a case of in at the deep end for Mr Sunak, as his first budget will have to take special account of the as-yet unknown economic effects of the coronavirus outbreak. The virus, which began in China, has rapidly spread around the world and bodies such as the OECD have warned that many countries will experience a hit to their rates of economic growth.
Following the Conservative Party’s crushing victory in the recent election, Sajid Javid’s replacement at the Treasury will have carte blanche when it comes to bold policy decisions. To that end some analysts expect him to propose radical reforms to taxes and public spending right from the outset.
On March 11 we can expect to see a flood of public spending aimed at the north of England, which would appease the voters who helped elect Boris Johnson and rebalance the economy away from the southeast. A northern boost is something that has long been called for, with previous chancellors having failed to make much of an impact despite plenty of bluster.
For the average person, further fiscal stimulus is likely to appear in the form of a tax cut for around 30 million, with observers expecting the threshold for paying National Insurance will be raised.
Both of these loosening measures would no doubt be seen by currency traders as positive for Sterling, so we can expect to see some gains for the Pound if expectations are confirmed.
Nevertheless, Mr Sunak may find himself having to rethink some parts of his budget in reaction to the coronavirus health scare. Economists are openly saying that the virus is likely to trigger a worldwide economic downturn, and with supply chains from China being hit hard we can expect to see businesses struggle to meet orders in the coming months due to parts shortages and credit disruptions.
The impact on the service sector is not expected to be any less severe, with tourism and hospitality all nervously waiting to see whether the virus can be brought to heel. Any plans for aiding stricken businesses will likely form a core part of Mr Sunak’s budget statement.
Given Sajid Javid’s recent departure, MPs and business leaders are keen to see whether Rishi Sunak follows through with some of his predecessor’s plans, such as an ambitious goal to build a network of electric car charging points, as well as allocating targeted money for social care in the NHS.
Some are urging the new chancellor to be bold, with Rachel Reeves, the Labour chair of the all-party Business, Energy and Industrial Strategy select committee, stating:
“The coronavirus, flooding, Brexit and warnings about a big hit to economic growth have put businesses and households under huge pressure. But now is not the moment for a safety-first budget.
“The chancellor must not use this uncertainty as an excuse to further delay the investment that the north and our public services so badly need. The country would never forgive a chancellor who sits on his hands when we are facing a national emergency.”
In the end it will be markets assessment of the relative merits of Mr Sunak’s ‘baptism of fire’ budget that will determine any movement in Sterling. If he manages to convince them he has a steady hand and is the right person for the job to lead the UK through a turbulent economic period, then we can expect to see the Pound appreciate against the other major currencies on March 11.
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