Sterling little changed ahead of Sunak spending plans

© Reuters. FILE PHOTO: British Pound Sterling banknotes are stacked in piles at the Money Service Austria company’s headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

By Stefano Rebaudo

(Reuters) – Sterling was little changed on Wednesday ahead of a half-yearly update on the public finances and economic outlook from British finance minister Rishi Sunak.

Sunak will try to show that he is moving Britain on from the coronavirus pandemic on Wednesday when he announces multi-billion-pound investments to help Prime Minister Boris Johnson meet spending promises to voters.

But the Sunak, who has adopted a more hawkish fiscal stance than many of his peers, is making investors and policymakers uneasy as higher inflation coupled with labour market shortages and supply chain disruptions are expected to hurt the economy.

For this reason, the pound recently failed to capitalise on expectations of a rate rise from the Bank of England.

“The budget will be watched for further detail on the UK’s post-Covid fiscal path, but rarely do measures have a lasting impact” on markets, forex dealer Argentex said.

By 0820 GMT, sterling traded at 84.4 pence to the euro, 0.1% lower on the day, while against the dollar, it was marginally weaker at $1.375.

“As the BoE risk event draws closer, may continue to stay broadly pressured, and looks set to heavily test the 0.8400 support level in the coming days,” ING analysts said.

Bank of England interest rate-setter Silvana Tenreyro said she needed more time to judge how the end of the government’s job-saving furlough scheme affected the labour market, adding to signs that she sees no urgency to raise rates.

Concerns around potential tax hikes that may be announced in Wednesday’s budget continued to keep the pound on edge, alongside EU-UK wrangling over post-Brexit trade.

Britain said on Monday the European Union’s proposals to solve the problem of trade involving Northern Ireland did not go far enough, and significant gaps remained between the two sides.

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