- Sterling traders have been looking for concrete evidence that the UK and the EU negotiated a trade agreement before the end of this year’s transition period.
- The UK budget deficit in the first half of this fiscal year rose to a record £208.5 billion.
- In late November, the budget analysis will be written.
The pound hit its biggest gain since the market turmoil in March on Wednesday, and the market is betting that a Brexit deal may be reached next month. The pound rose 1.7% to $1.3171 against the US dollar, the highest level in more than six weeks, after Bloomberg reported that trade negotiations between the UK and the EU may resume.
According to people familiar with the matter, the negotiators aim to reach an agreement before mid-November. David Madden of CMC Markets sums up the day:
“Optimism is circulating with respect to the possibility of the UK and the EU achieving a trade deal, hence the upward move in sterling. Stocks like Diageo, AstraZeneca, Unilever and GlaxoSmithKline and British American Tobacco are weighing on the British index because of the rally in the pound.”
“The companies all earn a relatively high portion of their total revenue from overseas, so sterling’s positive run has pushed them into the red. The major European indices are showing losses too as traders on this side of the Atlantic are worried about the tougher restrictions brought on by the pandemic.”
Sterling traders have been looking for concrete evidence that the UK and the EU negotiated a trade agreement before the end of this year’s transition period. The market will be both sides recently.
British National Bureau of Statistics data released Wednesday showed the UK budget deficit in the first half of this fiscal year rose to a record £208.5 billion, highlighted the economic cost of support during the outbreak.
Data show that the UK government borrowed £36.1 billion in September alone, exceeding market expectations.
British Chancellor of the Exchequer Rishi Sunak said in a statement after the data was released: “Over time and as the economy recovers, the government will take the necessary steps to ensure the long-term health of the public finances.”
“In the current environment it’s essential that we provide certainty,” Sunak said in a statement on Wednesday. “So we’ll be doing that for departments and all of the nations of the United Kingdom by setting budgets for next year.”
In late November, the budget analysis will be written. A multi-year programme would also be financed for the National Health Service and schools, along with priority development programs, such as the HS2 railway initiative, ensuring that long-term preparation is not disrupted.
In July Sunak began the budget analysis and warned Ministers that “hard decisions” must be made after the pandemic. It was advised to “identify means of redirecting and providing savings” from departments by pointing to already expected inflation rises.
However, the continuing pandemic, with vast regions of the world again in partial lockdown, is making it impossible for the government to forecast the existing economic condition and the budget capacity in the years to come.
In northern Britain, the regions that face tightest constraints are fueling complaints. After his hopes of achieving Brexit, Prime Minister Boris Johnson was forced into power to cope with economic disparities.