UK: Focus on first spring budget - SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that today’s main event may be Phillip Hammond’s first Spring Budget, soon to be demoted relative to the Autumn Statement.

Key Quotes

“The fact that he doesn’t want two big policy announcements a year tells us what to expect – not much. Lots of noise, but an empty purse. Some growth forecast upgrades, which in turn deliver downward revisions to the budget deficit for 2016/7 and 2017/8, but no fiscal generosity. There will be talk of creating the room to cope with future uncertainty but the bottom line is that fiscal policy isn’t going to be accommodative, and monetary policy won’t get any less accommodative.”

“The FX implication is that UK rates and in relative terms, UK yields, are anchored. As the US/UK 10- eyar real yield gap heads off towards 250bp, GBP/USD looks likely to head to, and through 1.20. EUR/GBP tracks real yields too and if the French election opens the way for higher Bund yields, it will open the way for a move back through EUR/GBP 0.90 too.”