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However, while there was only a loose connection between the two events, the speech did help answer the question of how much additional support the government is prepared to offer businesses and individuals whilst the unlocking process is underway.
The Chancellor outlined a number of changes to furlough and business support measures, including:
• No changes to rates of income tax, national insurance or VAT
• Tax freezes for personal income tax allowance and the higher rate income tax threshold, from 2022
• Corporation tax on company profits to rise to 25% in April 2023
• Business rates holiday for firms in England to continue, until June
• VAT rate for hospitality firms to be maintained at a reduced 5% rate until September
Other points, such as the extension to the furlough scheme and stamp duty holiday had already been reported in the press, and with many of the measures already pre-announced, movements were already priced in.
What could have been a bigger help to the pound was the slightly brighter assessment from the Office for Budget Responsibility, the government’s independent economic forecaster and analyst. The OBR upgraded its predictions for growth and jobs, lowering its estimate of peak unemployment from 7.5% to 6.5% at the end of this year. It hopes the combination of budget stimulus and vaccination will bring “a swifter and more sustained economic recovery, albeit from a more challenging starting point than we forecast in November”.
There is one more question, and that is what this all means for the pound?
Over the course of 2021 so far, the pound has continued its rally against the likes of the euro and US dollar, significantly outperforming other majors against the US dollar. The rally has been very impressive, but the move up from $1.35 and €1.1350 looks to have had little to do with any material changes to the UK’s economic outlook, up until now at the very least.
In the coming quarters, could the first mover advantage of unlocking for businesses fade? It is likely that the UK will recoup all of its lost output by the end of 2022, or early 2023. The pound may slip over the upcoming quarters, and find it difficult to sustain rally beyond recent highs. Equally, as the economy returns to normal, trade flows should normalise, which could mean a significant increase in the currency requirements around the UK’s net trade imbalance. The pressure is likely to build on the pound as the UK returns to ‘normal’ and other economies catch up.
Nevertheless, we are seeing sure signs of the Government shifting gears from ‘survive’ to ‘thrive’, with the economy forecast to rebound in 2021 and projected annual growth of 4% this year.