Pound steady after Healey's 'continuity budget'

Pound Remains Steady Following Healey’s ‘Continuity Budget’ and Fiscal Plans

Market Reaction and Fiscal Policy Overview

By Amanda Cooper

Summary of Healey’s Budget Announcement

LONDON, Oct 29 (Reuters) - The pound held mostly steady on Thursday, a day after finance minister John Healey's budget that offered a cautious set of tax and spending plans to help households hurt by "global economic storms", which had minimal impact on UK markets.

Key Tax and Spending Measures

Healey said he would raise taxes on banks, gambling, savers and landlords, while also tightening value-added tax rules for online marketplaces — such as Amazon and eBay —  as well as introducing measures to ease the hit from rising energy bills.

Sterling and Euro Performance

Sterling, which is the best-performing major currency against the dollar this month, with a 0.52% gain, was last flat on the day at $1.3325. It has also gained a similar amount against the euro in October, which has taken the single European currency to its lowest in 17 months.

The euro was last down 0.1% at 83.62 pence, ahead of a monetary policy decision from the European Central Bank, which is expected to leave euro zone rates unchanged later on Thursday.

Fiscal Targets and Public Finances

Buffer for Fiscal Target

Healey said on Wednesday he would use some of his buffer for meeting his main fiscal target, which shrank to £15 billion ($20 billion) from a previous estimate of £24 billion, while meeting his commitments for repairing the public finances despite the Iran war shock.

Analyst and Investor Reactions

"A 'continuity Budget' with fiscal headroom upside potential pushes the pound’s perceived fiscal risks to the background," Barclays FX strategist Lefteris Farmakis said of the pound in a broader note on the budget.

Investors and analysts on Wednesday said the budget left Britain's fiscal outlook largely unchanged, a potential positive.

"We think today’s budget means the pound can continue to benefit from the theme of reduced UK political uncertainty versus elsewhere. We stay long sterling/dollar," BNP Paribas strategists said in a note.

Central Bank Decisions and Market Expectations

Bank of England Outlook

The budget did little to materially change market expectations for the Bank of England's meeting next week. Traders are fully pricing in a rate increase from the BoE on November 5, with a second hike fully priced in by February, according to money markets. 

Federal Reserve Policy

The Federal Reserve left US rates unchanged the previous day, as widely expected, opting to delay any changes to borrowing costs until after next week's US midterm elections while it awaits further data on inflation, which the central bank said "remains elevated."

Exchange Rate Reference

($1 = 0.7503 pounds)

(Reporting by Amanda Cooper; Editing by Alex Richardson)