UK’s Osborne assures of contingency plan to deal with market volatility
The United Kingdom’s Chancellor Osborne has reassured the public that robust contingency plans have been put in place to deal with any potential fallout and address any market volatility that is expected to persist for some time. He, however, confirmed that due to the referendum decision, some companies are suspending investment and hiring decisions.
As this is likely to impede activity and growth, he asserts that there is a requirement to address the expected hit to the public finances, and action introducing new tax and spending measures will need to be taken in the autumn to address the fiscal finances, after PM Cameron’s replacement is announced.
Further, he reiterated that the UK budget deficit as a proportion of GDP is expected to improve to sub-3.0 percent, compared to 4.0 percent in FY201-16, and the government plans to achieve that goal, although few analysts want this target to be missed.
The other uncertainty, of course, is whether another general election is called. There has been much speculation that this could be the case and is part of the reason why the opposition Labour party is in disarray at the present time, as the senior members of the party try to force a leadership election to present a new leader capable of winning them any fresh general election. If a general election is announced there is also the added risk of a hung parliament outcome, which would add to GBP’s vulnerability.
The Gilt market is relatively unperturbed by this latest upheaval in UK politics and even Moody’s lowering of its UK credit rating outlook to negative, from stable, meaning that the UK’s current Aa1 rating is under threat, appears not to have much effect on the market.
Meanwhile, the market is now fully pricing the prospects of monetary easing from the BoE by 25 basis points by 2016-end as players take the view that the likely weakening of the economy will take precedence over the worries about mounting inflation, wrought by GBP depreciation, in the pecking order.