George Osbourne had some good news before the budget came out yesterday, with the number of unemployed falling by 63,000 in the three months to January, but the unemployment rate remains the same at 7.2%.
Average income also increased by 1.7% year on year, which is nearly as high as inflation at 1.9% and private sector pay is equal to the level of inflation at 1.9%
With regards to the budget, Osbourne commented that UK growth this year is expected to be 2.7%, up from the previous estimate in December of 2.4%. This is the biggest upward growth revision between budgets for 30 years.
He was also of the opinion that GDP will surpass it pre-recession peak by the end of June.
Unemployment this year will be down to 6.8% and will be down to 6.5% the following year.
Inflation is set to remain stable at 1.9% and real wages will start to finally climb this year, saying average earnings will rise by 2.5% this year.
The dollar gained significantly last night on the back Federal Reserve Chairman Janet Yellens surprising comments about an interest rate hike in the US.
The Fed’s monetary policy meeting began with the central bank deciding to reduce its monthly bond buying programme by US$10bn, down to US$55bn. Yellen then reaffirmed that the Fed will continue to taper quantitative easing by US$10bn per month meaning the programme will probably come to an end by this autumn.
The curveball in last night’s statement came when Yellen indicated that the Fed could start to increase interest rates around 6 months later.
Initially they had pledged to keep interest rates low until the unemployment rate hit 6.5% but they will take into account a wide range of information, including labour market conditions, indicators of inflation, and financial developments at the time.
The surprising comments about interest rates caused GBPUSD to drop by 1% and EURUSD to drop by 0.95%.
The US will be in focus again this morning with initial jobless claims and manufacturing data released from Philadelphia.
12:30pm – USD – Initial Jobless Claims: Expected to rise to 327,000
14:00pm – USD – Philadelphia Fed Manufacturing Survey (Feb): Expected to come in higher to 4.