Today, 5 months to the day since the EU referendum, Chancellor of the Exchequer Philip Hammond has delivered the first Budget of the Theresa May Government; the first Autumn Statement to the Commons in light of Brexit. In brief: GDP growth forecasts lower by 0.8% and 0.4% for 2017 and 2018; planned borrowing to increase by £122bn for the next 5 years; some slender support for renters and affordable housing; some mollifying policies for the ‘just about managing’ or JAMS increasing the ‘national living wage’ and tempering some of the Universal Credit reforms; corporate tax will be cut to 17% along with a wide range of new tax reforms; and new fiscal targets of a 2% deficit with debts falling by 2020. Markets saw inflation expectations surge higher; also sterling rallied to 1.2435 during the statement but then fell to 1.2360 before the end of the statement as US data came out.
All Hallows’ Eve beckons; traditionally a night to remember past loved ones but now mostly a chance for children, and also celebrities it seems, to dress up, party and frighten their neighbours, armed with toilet paper and extorting for sweets (bad news for florists but good business for costume retailers, confectionists, dentists and perhaps those needing toilet paper on the walk home from a few too many drinks).
For many of us, today also marks something more worrying than Halloween - the end of another terrible month for the British pound. Sterling weakened a further 6.2% in October making it the worst performing currency; this after already falling 8.6% in June and further in July, August and September. In fact unless one is planning to travel to Angola, Nigeria, Venezuela, Mozambique or Suriname (and not use dollars) a Brit will find themselves worse off anywhere in the world compared to the end of 2015.
So 'love it or hate it', Marmite now costs more according to Unilever as the impact of Brexit hits the high street. Could be the foundations of a new Australian trade deal based on the import of Vegemite to sooth the pain to the great British public. Theresa May go get them.
But in reality the cost of Vegemite could also be affected as sterling has hit a 168 year low, according to the Bank of England’s basket of currencies made up from trading peers. Which means the effective value of the pound is less now than the withdrawal from the European Rate Mechanism (1992 and Black Wednesday) and when the UK decided to leave the Gold Standard (September 1931). Unfortunately sterling is now down 17% against the Australian dollar since the 23rd June vote and is the weakest currency this year according to Bloomberg’s basket of Extended Majors, 31 currencies in total. So Vegemite may not be the solution to this latest disaster to hit the UK consumer. So glad Dove anti-ageing moisturising cream bar soap is not a Unilever product!
The UK’s vote to leave the EU is biting back with sterling extending losses against the US dollar, falling to its weakest level since the GFC. Despite recent economic data such as retail sales surprising on the upside sterling is being pounded by worries over a 'hard Brexit'. The pound is now over 16.5% weaker against the dollar year-to-date and has plummeted more than 18% against the euro, at time of writing. In fact the currency is one of the worst performing against the greenback so far this year; worst than the Argentinian Peso, and sitting ahead of the Angolan kwanza, Nigerian naira and the Venezuelan bolivar! Former BoE governor Mervyn King yesterday claimed that the weaker pound is a 'welcome change' adding that the Brexit concerns are ‘over the top’. He went on to comment that during the referendum campaign, it was noted that Brexit would push inflation higher, and that house prices and sterling would fall; basically what the BoE has ‘been trying to achieve for the past three years and now … have a chance of getting it.’
Market action this morning was focussed on the friendless pound as it hit 31 year lows against the US dollar with cable plummeting through 1.28, a technical level opening up for a possible further drop to 1.22. Against the euro, sterling is close to visiting the lows of 2011 with some market makers expecting an attempt on 0.90 and the all-time low for the pound around 0.95 last seen in 2009.
Fears for a tough Brexit are the reason with some big tickets going through the market. But in reality sterling has been weakening since mid-2015 and is now down 23% against the euro and 19% against the US dollar, as measured by the spot rate over that period.
After weeks of the phoney war following the Brexit vote, yesterday PM Theresa May officially fired the starting pistol for the UK to leave the European Union when she announced the Conservative Government will invoke Article 50 before the end of March 2017. In her first speech to the Conservative Party conference in Birmingham, May said that control of immigration and withdrawal from EU law will be the priorities during the negotiations. She made it very clear that immigration and border controls will be lines in the sand during negotiations, saying that “we are not leaving the European Union only to give up control of immigration again” adding that the UK will be a “a fully-independent, sovereign country that will no longer be in the jurisdiction of the European Court of Justice”.
The Great British Pound continued it slide today having fallen ~2.4% against the dollar just this week; as Brexit jitters worsen. Sterling has been one of the worst performing currencies against the dollar this year, down around 4% on a total return basis, while the offshore renminbi, which investors seem to shy away from at the hint of volatility is up around 2% in the same timeframe. With the referendum just 3 months away we expect the pound will continue to come under pressure; the Tory split and recent atrocities in Brussels have not helped sentiment.
So far this year using “sterling” as a compliment is rather unbefitting; the Great British Pound is among the worst performers year-to-date of any currency. Today it dropped below 1.40 to the US dollar and is currently down over 5.5% year to date - more than the Korean won (5.0%), Russian rouble (4.5%) and the Indian rupee to name but a few others ranking near the bottom. Since London Mayor Boris Johnson’s announcement to back the “Out” campaign on Monday the pound accelerated its decline. Sterling now only has to drop a little further, to below 1.3770, to surpass GFC lows - allowing the headlines to turn from “7 year lows” into “30 year lows”. Moreover the press are peddling analysts’ “forecasts” that a Brexit could push the currency below 1984/5 levels. That would mean a further 24% decline to below 1.0520 to the dollar, at which it would become a “new all-time low”. Incidentally during this Sceptered Isle’s zenith one could apparently get 10 dollars for each pound note (20 shillings). However this was around 1864 - a time when the US introduced Greenback notes as a fractional currency during the American Civil War.