Today’s Budget was not good news for travel firms looking for an increase in the value of sterling against the euro and the US dollar to boost overseas travel.
In his hour-long speech Chancellor George Osborne made great play of the low interest rates in the compared to other countries in Europe and the impact they have had on UK economic recovery.
But Nick Ryder, global currency analyst at Smart Currency Exchange said the outlook for inflation “looks pretty flat” with the Bank of England seeming intent on keeping rates low.
Ryder said: “Sterling has fallen by 0.8% against the US dollar following today’s ‘pro-growth’ Budget and lacklustre Bank of England minutes.
“Sterling suffered as chancellor George Osborne lowered the estimate for UK economic growth to 1.7% this year from a previous forecast of 2.1%. Inflation is also expected to remain between 4% and 5% which raises the possibility that we could be looking at a period of “stagflation”.
“Heading into today, sterling had been buoyed by higher than expected inflation and an expectation of earlier than expected interest rates.
“However, the Bank of England minutes showed no changes to last month’s voting and the Budget delivered a downgraded growth forecast – both of which contributed to sterling’s drop.
“Overall, the outlook for sterling now looks pretty flat. The Bank of England seem intent on keeping interest rates on hold with the view that inflation will fall later in the year but this will leave sterling unlikely to break beyond $1.63/£1 or recover recent lost ground against the euro.
“Whilst there were encouraging moves in the Budget aimed at bringing foreign business into the UK, downgraded growth and high forecast inflation is not the best of combinations to boost the pound.”