Sterling fell to a seven-week low today ahead of a British budget expected to raise economic forecasts but remain thrifty as Chancellor of Exchequer Philip Hammond targets curbing a big fiscal deficit.
Hammond is due to announce his tax and spending plans for the year at 1230 GMT, in Britain’s first full budget statement since it voted to leave the European Union last June.
Strong consumer spending made Britain the second-fastest growing economy in the Group of Seven rich nations in 2016, but Hammond is unlikely to count on that.
As signs emerge that consumer spending has slowed amid rising inflation — driven largely by a fall in the pound of around a fifth against the dollar — Hammond has signalled he will not spend the windfall, instead saving it for what could be a testy period of negotiations for Britain as it exits the EU.
Sterling has fallen 2.5 percent in the past two weeks after a run of weaker-than-expected data, with the latest numbers on Tuesday suggesting the economy is heading for a slowdown as Britons feel the strain of rising prices.
It fell a further third of a percent on Wednesday to $1.2160, its lowest since Jan. 17. It was also 0.2 percent lower at 1.152.
On Tuesday, Britain’s House of Lords delivered a defeat to Prime Minister Theresa May’s legislation to trigger Article 50 – the notification that will formally begin divorce talks with the EU.
I think the key reason sterling is lower is the Brexit timetable (triggering Article 50) could be under a bit of threat with the amendments the Lords’ have passed.