LONDON (Reuters) -The pound briefly jumped to session highs, while UK government bond prices staged a short, sharp rise on Wednesday, after the independent Office for Budget Responsibility released its forecasts early, offering a more upbeat view of Britain’s economy and finances.
Britain’s government will have almost 22 billion pounds ($28.9 billion) in fiscal headroom in five years’ time, according to estimates by the country’s budget watchdog published on its website on Wednesday ahead of finance minister Rachel Reeves’ budget statement. That is higher than a Reuters poll expected.
Sterling rose to a session high of $1.32 from around $1.3153 prior to the OBR forecasts, but was last down 0.2%. Ten-year gilt yields fell as much as 7 basis points on the day to 4.425%, as prices rose, but were last up 2 basis points on the day.
UK stocks were last up 0.1%
COMMENTS:
PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON:
“This timing of headlines is a big surprise, but at first glance they seem relatively favourable in terms of the fiscal metrics.”
“Over the budget process, you would expect the Chancellor to unveil the measures and the OBR arithmetic gradually when she stands up and the OBR numbers to be revealed when she sits down again.
“Number one: this is early and secondly from what we can see at the moment, the fiscal numbers look relatively benign, with the government on track to meet its fiscal rules more comfortably than expected.”
ANDREW WISHART, SENIOR UK ECONOMIST, BERENBERG, LONDON:
“It’s not clear if this (the OBR release) is a mistake or not, but so far so good in terms of the headline numbers.”
“The headroom has increased and more importantly we can see a tightening in the budget deficit over the next two years and that supports the argument for BOE rate cuts.”
JEREMY STRETCH, HEAD OF G10 FX STRATEGY, LONDON:
“If the headlines are correct in terms of greater fiscal room that is beneficial for gilts. The downside is that if fiscal headroom is larger it could mean that we get more fical tightening.
“So we have part of the story, but there are questions to be asked.”
“Trend growth has been revised down compared to the spring and that’s not great from a productivity perspective.”
(Reporting by Reuters Markets Team; Compiled by Amanda Cooper; Editing by Yoruk Bahceli)
