The pound sterling returned to $1.12 against the US dollar on Friday morning, equalling levels prior to the announcement of the mini-Budget one week ago.
The currency had stooped to $1.03 on Monday as the announcement of large-scale tax cuts with the prospect of more to follow instigated volatility in the markets.
Meanwhile, the Office for National Statistics has released data indicating that the UK has avoided entering a recession for now, contrary to the Bank of England’s recent fears.
ONS figures show growth of 0.2 per cent in the UK economy between April and June, revised from earlier numbers which showed a contraction of 0.1 per cent.
However, the economy remains 0.2 per cent smaller than in the final quarter of 2019 before the onset of the Covid-19 pandemic.
The ONS had previously predicted the economy to be 0.6 per cent bigger than in Q4 of 2019, which meant that despite the avoiding of a recession for the moment, analysts are concerned that the overall prognosis is worse than previously thought.
Capital Economics’ Paul Dales said: “Despite the better news on the performance of the economy in the second quarter, the overall picture is that the economy is in worse shape than we previously thought. And that’s before the full drag from the surge in inflation and leap in borrowing costs have been felt.”
This news comes as prime minister Liz Truss and chancellor Kwasi Kwarteng met with the heads of the Office for Budget Responsibility [OBR] on Friday, to discuss the market response to the mini-Budget.
Following the meeting, the Office for Budget Responsibility has said that it will publish the first draft of its economic forecast on October 7. It will also set-out its timetable leading up to November 23, the day that the chancellor will outline the fiscal plan to reduce public debt in the medium-to-long-term.
Parliament's Treasury select committee chair, Mel Stride, suggested that market reaction could dictate that the government has to rein in on some of its plans.
Stride said: “The judgement so far of markets is that what was announced last Friday doesn’t stack up fiscally and some changes are going to need to be made.
“Possibly now we can have a major reset moment in which confidence can be regained.”
Photo by Sarah Agnew on Unsplash
