'Forecasts Are There To Be Beaten': Sterling Spikes As Hammond Delivers Upbeat Outlook In Spring Statement

Chancellor Philip Hammond

Photos: iStockphoto/Chatham House/Flickr/Creative Commons CC BY 2.0

Sterling was on the rise in afternoon trading following a a series of optimistic forecasts for the UK economy from Chancellor of the Exchequer Philip Hammond in his first Spring Statement.

Hammond revealed the Office for Budget Responsibility (OBR) had raised GDP growth expectations for 2018 to 1.5%, up from 1.4% it predicted in November, leading to sterling gaining 0.46% against the dollar to $1.396 and 0.18% against the euro to €1.128.

Conversely, the FTSE 100 is down 0.4% to 7,185 points while the FTSE 250 was down 0.6% to 19,996 points.

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Hammond, who said he was "positively Tigger-like" as he delivered his speech, as he also rejected the Labour party's "doom and gloom" attitude and remained positive on the UK, which he said faced the future with "unique strengths".

"Forecasts are there to be beaten," the Chancellor said, referencing the OBR's UK GDP forecasts. "Our economy will remain outward looking, confident and ready to compete with the best in the world."

Furthermore, the OBR predicted inflation to fall back below the Bank of England's (BoE) 2% target by the end of the year, leading to real wage growth turning positive in the first quarter of 2019.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Philip Hammond is feeling particularly Tigger-like apparently, but there's no honey today for public services, more a hint of some honey tomorrow in the Autumn Budget later this year.

"That promise is based on current economic tailwinds continuing until then, and not being snatched away by the vagaries of economic forecasting. 

"The pound rose on currency markets in reaction to the improved economic forecasts, in particular the expectation that real wage growth will return to the UK this year, raising the prospects for higher interest rates.

"There is not a great deal of reaction on the stockmarket, reflecting the stripped-down nature of the statement and the lack of any clear policy changes affecting individual companies."

Russ Mould, investment director at AJ Bell, said: "The UK has already generated eight straight years of GDP growth since 2010 and the OBR is predicting five more.

"Even if their forecasts of 1.3% to 1.5% a year are hardly rip-roaring that implies an usually long economic upturn and one that is still reliant on cheap debt and Bank of England support to keep it going."

Khalaf continued: "Despite the upbeat tone from the Chancellor, the UK is clearly out of favour as an investment destination for both domestic and overseas investors.

"In particular, retail investors continue to withdraw money from funds investing in UK shares, preferring international markets instead.

"While there are clearly risks to the UK economy, the current bout of extreme pessimism towards the UK stock market looks overcooked.

"The UK is home to a diverse range of companies, many of whom pay a decent dividend, and it should not be ignored by investors looking for a home for their money."

Ben Seager-Scott, chief investment strategist at Tilney Group, said: "The latest update from the Chancellor and the OBR remains consistent with our view that there are structural challenges for the UK economy in the near term, with ongoing political uncertainty holding back growth potential.

"The better news is that these headwinds likely translate to tailwinds down the line in the form of pent-up demand, and market valuations are reflecting the weak sentiment.

"At some point, these two factors will likely create an attractive investment case, but we do not believe we are there yet."

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