Sterling Euro Outlook Forecast

• 50% tax for £150k + earners
• Massive debt and deficit increases
• Economy shrinking at record rate
• Public spending dramtically cut
• Books wont balance until 2018
• Fuel, Alcohol and Cigarettes up
• £15billion public sector 'efficiency savings'
• £2,000 old car scrapping scheme

As soon as the Chancellor opened his mouth, the pound started to fall. It hit a 3 week low against the dollar, and 1.5 cent drops against the Euro:

Here we see yesterdays GBPEUR chart to give you an example of how quickly the currency markets reacted to the bad news. Can you guess when Darling started to speak?! We immediately saw big drops in rates across the board, as the pound faced a hammering.

The biggest problem was our levels of debt, and concerns over how that will be repaid. The pound was then hit further after he announced a new income tax rate of 50 percent from 40 percent on those earning in excess of £150k.

"I would expect sterling to weaken across the board following the income tax change," said Neil Jones, from Mizuho in London. "The market will consider the disincentive to effort and possible brain drain effects of possible talent moving abroad."

The pound was also hit after the chancellor said a "competitive exchange rate" would help exporters. Well, that's all very well but when companies are folding left right and centre, it's not much good!

"Why would you want to go anywhere near sterling right now? There will be better levels to buy in the coming days and weeks," said a strategist at National Australia Bank. "The budget had unrealistic growth forecasts, heaped pain on high earners and entrepreneurs, had little in the way of the spending cuts, and issuance figures that were much higher than anyone was expecting."

• Growth - -3.5% in 2009, +1.25% in 2010 and +3.5% in 2011
• Debt - Will double to 79% of GDP by 2013
• Deficit - Rises to £175bn for two years before falling to £97bn in 2013/14

Hmmm. His very optimistic predictions seem to suggest that the economy will start to recover at the end of this year, however at the same time he predicts that UK debt will rise to a staggering 80% of GDP within the next few years.

This is way above the levels of every other single country in the world, and no analysts seriously expect recovery to happen that soon. What did surprise me, is that the pound did not fall further in the face of the most dire situation for the UK and the pound since World War 2.

Summary

We owe lots of money, we dont know how we are going to pay it all back, and the plan by the government is to borrow even more, and then leave it to the next government to sort out. So, hardly promsing for the future of UK exchange rates.

If you have a requirement to purchase foreign currency, its time to consider how you are going to manage the risk involved. See a recent article I wrote here about how to manage risk, and the options available to you.