November 22, 2017 / 4:19 PM / a year ago

RPT-UPDATE 1-Bleak but "boring" British budget leaves markets little moved

(Repeats with new headline)

By Jemima Kelly

LONDON, Nov 22 (Reuters) - Sterling seesawed on Wednesday while British stocks remained higher on the day after a UK budget statement that was seen by investors as bleak but not dramatically changing the outlook for Britain’s Brexit-bound economy.

The pound dipped after finance minister Philip Hammond read out sharply lower growth forecasts, but later recovered all its losses to hit a three-week high of $1.3283 against a weakening dollar. Against the euro, it was 0.2 percent lower at 88.565 pence as the single currency strengthened broadly.

Traders said they had expected the Office for Budget Responsibility (OBR) to lower its forecasts as the Bank of England did this month, but were disappointed by the lack of significant new fiscal stimulus measures to make up the gap.

“We were told that the OBR was going to revise down its forecasts — that wasn’t a surprise,” said Rabobank currency strategist Jane Foley, in London.

“(But) in the context of strong world growth, it doesn’t sit easily to see UK growth revised down to just 1.5 percent for this year and then staying below the 2 percent level all the way out to 2022.”

The OBR’s projections for 1.5 percent growth in 2017 were down from forecasts of 2.0 percent made in March. For 2018, forecasters see 1.4 percent growth, and for 2019 and 2020 growth of just 1.3 percent - a sharp downward revision from the 1.7 and 1.9 percent respectively seen in March.


Some traders said sterling had been boosted late in the budget statement by Hammond announcing that stamp duty property tax would be cut for first-time buyers, though most said the budget painted a bleak picture of the economy.

“It doesn’t matter what he (Hammond) says about new initiatives, tax and spend,” said Daiwa’s head of economic research, Chris Scicluna.

“The bottom line is that there is a recognition from the OBR that the growth outlook is dire at a time when the world economy is enjoying a synchronized upswing, Germany is enjoying a boom and even Italy is growing faster than the UK.”

British housebuilders’ stocks initially hit a session high after the stamp duty announcement, up 1.6 percent.

But they fell back to trade just 0.3 percent higher on the day after Hammond said the government would review unused planning permissions and consider compulsory purchases if sites were being withheld for commercial rather than technical reasons.

The main FTSE 100 share index traded up 0.3 percent on the day, having traded up half a percent before the budget.

British government bond yields fell during the speech, unwinding earlier rises. Yields on two-year gilts briefly fell to a two-week low at 0.458 percent before pulling back to around 0.48 percent. Ten-year gilt yields were little changed on the day at 1.28 percent.

“This is a pretty boring Brexit budget. There is really nothing that will be a game-changer,” said ING currency strategist Viraj Patel. (Reporting by Jemima Kelly; Additional reporting by Saikat Chatterjee, Helen Reid and Dhara Ranasinghe; Editing by Catherine Evans)

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