**GBP/USD Slides to 1.3220 Following UK Autumn Budget Despite Weekly Gains**
*Original reporting by VT Markets Editorial Team*
The British pound saw a sudden downturn on Friday, slipping to around 1.3220 against the US dollar, just after the UK’s Chancellor of the Exchequer delivered the Autumn Budget statement. This movement occurred despite the GBP/USD currency pair having clocked nearly a 1 percent weekly gain ahead of the announcement. The reversal illustrates how political events and government economic forecasts continue to carry significant weight in forex markets.
**Autumn Budget Overview: Fiscal Measures and Macroeconomic Projections**
Chancellor Jeremy Hunt’s Autumn Budget aimed to strike a careful balance between supporting household incomes and maintaining fiscal responsibility. The speech included a raft of policy announcements, revised fiscal guidance, and updated forecasts from the Office for Budget Responsibility (OBR).
**Key Policy Announcements:**
– National Insurance cuts for employees to improve disposable income.
– Incentives for businesses, including the extension of full expensing for investments.
– Targeted welfare support aimed at reducing child poverty rates.
– No increase in personal income tax thresholds, meaning more earners will gradually be pulled into higher bands (“fiscal drag”).
The OBR’s updated macroeconomic projections included the following:
– UK GDP growth for 2024 revised slightly upwards to 0.7 percent.
– Inflation seen falling to the government’s 2 percent target by mid-2025.
– Government borrowing set to fall less rapidly than forecast in the previous budget due to ongoing public spending pressures.
**Market Reaction: Pound Gives Up Gains**
The immediate aftermath of the budget statement saw sterling erase its earlier gains. After rising to almost 1.33 earlier in the week—bolstered by softening US inflation data and improved risk sentiment—the British pound slipped to as low as 1.3220 against the dollar. The movement signaled investor disappointment in the Autumn Budget, with market participants evidently anticipating more robust fiscal support or bolder supply-side reforms.
Several factors influenced the currency’s decline following the budget:
1. **Limited Fiscal Headroom:**
The government’s decision to restrict fiscal giveaways was viewed as cautious, but also as leaving little scope for boosting near-term economic growth. Currency traders had hoped for more aggressive measures that might raise UK growth potential and justify a stronger sterling.
2. **Persistently High Inflation:**
While the OBR forecast a return to target inflation by mid-2025, inflation in the UK remains above the Bank of England’s target. The lack of significant direct support for households was perceived as a risk to consumer demand, potentially weighing on the economic outlook.
3. **Ongoing Fiscal Drag:**
Retaining the income tax thresholds means that more workers will move into higher tax brackets as wages rise, offsetting some of the positive effects from National Insurance cuts.
4. **Global Macro Context:**
The continued strength of the US dollar this week, driven by a cautious Federal Reserve and strong jobs data, added downward pressure to the GBP/USD pair, regardless of the UK’s domestic fiscal stance.
**Weekly Performance: Risk Sentiment and US Dollar Moves**
Despite Friday’s slide, the pound was still up nearly 1 percent for the week against the greenback. The earlier rally was helped by international developments:
– Softer-than-expected US inflation prints in CPI and PPI reports caused Treasury yields to drop, prompting a broad-based retreat in the dollar.
– Improved sentiment globally, with equities rallying and risk appetite returning after a volatile October.
– A sense that the Federal Reserve may be approaching an end to its rate-hiking cycle, buoying risk assets and high-beta currencies such as the pound.
**Technical Analysis: GBP/USD Short-Term Outlook**
Technically, the GBP/USD pair had been in an ascending channel since early November, touching resistance near 1.33. Friday’s retreat to 1.3220 pulled the pair closer to its 21-day Exponential
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