UK budget may have limited impact on the Pound Sterling – Rabobank

Today’s budget is the next scheduled event on the UK political calendar. A budget in line with expectations would offer little incentive for the Pound Sterling (GBP), economists at Rabobank say.

EUR/GBP to edge lower in H2 to 0.6400

A 2p reduction in National Insurance has been mooted as the headline grabber. While this has the potential to underpin demand, there has been plenty of opportunity for investors to price this in. Given the limited amount of wiggle room afforded to Chancellor Hunt, today’s budget may have limited impact on the Pound. Indeed, the UK’s tight fiscal position suggests that this year’s general election may also bring limited scope for volatility.

We continue to expect EUR/GBP to edge lower in H2 to 0.6400. This assumes the UK economic outlook brightens this year allowing for the Pound to maintain its tentative recovery. 

We see scope for Cable to push up to 1.3000 on a 12-month view, though we expect dips lower on a one-to-three-month view on the back of further potential bouts of USD strength.