UK Spring Statement 2022 and its potential impact on GBP

In the backdrop of the worst inflation in decades reaching the 6.2% mark, the war in Ukraine and rising living costs, the Chancellor of Exchequer Rishi Sunak delivered his Spring Statement today.

Mostly expected, the new measures involve around the key issues the UK population is facing.

The UK economy is forecast to grow by 3.8% this year, according to the Office for Budget Responsibility (OBR), a sharp cut from its previous prediction of 6.0%.

The OBR stated that with inflation surging, living standards won’t reach pre-pandemic levels for two years. Inflation is forecast to reach almost 9%, a forty-year high, at the end of 2022.

Despite the Spring Budget new measures, the OBR estimates that the UK tax burden will increase to the highest level since the late 1940s.

The impact of the Spring Statement on consumers

Fuel duty will be cut by 5p per litre until March 2023. This cut will help businesses to afford to keep importing goods and supplying UK consumers.

Energy efficiency home installations will benefit from VAT cut for five years. The announcement also included support for local authorities – they will receive more funding to help vulnerable households with rising living costs.

The effects of the Spring Statement on UK business activity

The income threshold at which point people start paying National Insurance will rise with the personal income tax allowance of £12,570. This tax cut, according to the Chancellor, should increase employees’ spending power by £330 a year.

The Employment Allowance, which gives relief to smaller businesses National Insurance payments, will increase from £4,000 to £5,000 from April.

How currency markets will be influenced?

Sunak’s proposed measures to ease the financial burden on working families and those on low income will lead to more funds being available for people to spend, and in turn it could lead to further inflation in the longer term.

Whilst this morning saw GBP/EUR exchange rate reached 1.2013, the market could interpret these measures to help households as a sign that inflation might last longer than currently expected. This could further weaken the pound and exacerbate the inflation problem. That’s because a weaker currency translates into higher prices for imported goods.

How does your company mitigate currency risk exposure?

Risks and opportunities will emerge from today’s Spring Statement. This exposure to fluctuating exchange rates brings the need for small and medium sized businesses to understand currency market risk and how to mitigate it.

At RationalFX we know when currencies value might move because we often know the timing of political events that might influence them, and the economic calendar shows us when triggering data will be released. However, there will also be circumstances that happen without warning. What we cannot predict is whether currency rates will move up or down and by how much.

This brings the importance of alleviating the impact of exchange rate fluctuations on the cost of your international payments.

RationalFX can help you take the strain out of transferring large sums of money overseas into another currency. Your dedicated currency specialist will work with you throughout the payment process to help you secure the most favourable exchange rate. Click here to get in touch.