FX Update – News Flash MPC Split and the Government Spending Review

By Luke in Currency Articles | October 20, 2010 14:43 | Tags: , , , , , , ,

Today as expected has seen a decline in the pound against all of the majors. The Bank of Englands minutes have shown a three way split in policy, with Andrew Sentance voting for a rate hike and Adam Posen voting for more QE. The other MPC members are all still at present sitting on the fence. The pound came under further pressure as it becomes evident that MPC members may be leaning towards QE stimulus to avoid another recession.

Data released earlier today has indicated that the budget deficit is the greatest it has been since records began in 1993. This has helped to highlight the importance of the governments spending review.

The Goverments spending review has just been released announcing plans to slash public sector jobs. George Osbourne has said that “today is the day that Britain steps back from the brink” and that it takes time to turn around the debt super tanker. He went on to state that expenditure will continue to rise to £651 billion next year and £693 billion by 2014/2015.

The cuts to take place are widespread and will affect hundreds of thousands of people. The treasury faces a 33% cut, councils face cuts in excess of 25%, the police face cuts at 4% a yr and defence budgets have been slashed. The government will be cutting in almost all sectors and as always has tried to mask the extent of some cuts by cutting gradually on a year on year basisin some areas. This process of gradual cutting could however help calm fears that these cuts could force the UK back into recession.

There will also be widespread reform in the benefits and pensions sector. The department for work and pensions has been told that they will need to reign in spending and costs, to help reduce their £200 billion hole in the spending. The chancellor wrapped up his speech after nealy an hour on his feet stating that these cuts are necessary to bring sanity back to the UK’s finances.

The markets reaction to the news has had little effect the GBP/USD pair continues to test support in the low 1.57’s and a slight rally in the GBP/EUR pair is evident in the last 30 minutes.

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