Capital Economics: Sterling’s reaction to UK fiscal tightening expectations unclear

Capital Economics economist Ruth Gregory said in a note that the UK government appears set to unveil aggressive fiscal austerity measures in its November 17 autumn report, but the likely impact on the pound is unclear. While expectations that fiscal tightening will dampen economic growth should be negative for GBP, it will remove any residual concerns about fiscal health, which should have a positive impact on GBP. However, concerns about economic growth are more likely to dominate the pound as fiscal premiums have largely been lifted in the market since Chancellor of the Exchequer Hunt reversed many of the tax cuts introduced by the previous government.