Hammond’s higher growth forecasts fail to move markets

Hammond’s higher growth forecasts fail to move markets

The decision of the Office for Budget Responsibility (OBR) to revise upwards its forecast for UK economic growth failed to rouse markets as investors largely ignored the Budget.

The OBR forecasts are used by the government when making economic policy and ahead of yesterday's Budget its growth forecast for 2019 was revised upwards to 1.6 per cent, from the 1.3 per cent it forecast in March, and to 1.4 per cent in 2020, from the previous 1.3 per cent.

But the impact on currency markets was limited, with sterling falling against the dollar and euro.

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Edward Park, investment director at Brooks MacDonald, said: "Irrespective of today’s announcements, political risk looks set to continue to dominate UK economic and investor sentiment until clarity on Brexit is provided.

"A transition deal still provides the best avenue for the government to boost the economy and we agree that the economy will benefit from a 'deal dividend' if a Brexit deal is reached; furthermore, we see scope for sterling to appreciate and put downward pressure on inflation, which would support real wage growth and, therefore consumption."

The shares of companies such as JD Wetherspoon and Whitbread, which employ many workers in the UK hospitality sector, were both slightly lower this morning despite the FTSE 100 overall being up 0.17 per cent.

This may have been a reaction to the Chancellor of the Exchequer's decision to increase the national living wage from £7.83 an hour to £8.21.

Simon Gibson, chief investment officer at Mattioli Woods, said the recent bout of market volatility was evidence the market was willing to react negatively to "mere speculation" and said it would take greater levels of certainty around Britain's departure from the European Union for the mood to change.