It was a little like watching spectators at a tennis match in the City yesterday lunch time, as eyes flipped back from Osborne on the TV to prices on dealing screens. But we could have all saved ourselves some mild exertion as any financial market reaction – particularly in gilts and currencies – was difficult to find.
Of course, because many of the broader details had been leaked in the days ahead of the Chancellor’s speech there was no real expectation that the financial markets would be seeing any big surprises.
Arguably, the more significant movements yesterday came off the back of the Bank of England meeting minutes and the overshoot in the borrowing figures, initiating a sharp – if short lived – sell-off for the Pound, but otherwise it’s all been rather muted.
And being realistic, financial markets are never going to be big on the minutiae of a programme of cuts like this.
We have all known they are coming, we now know what they are and we all understand the importance of making these moves – if we are going to see further confidence returning to UK Plc it will now be all about the execution.
Osborne sees this long term plan as bringing Britain back from the brink and it would seem that overall, the vast majority of the business community is in broad agreement of cuts now rather than later.
However, although it is a long term plan that will see success measured over many years, now the speech has been done the financial markets will want to see the processes actually start.
After the Chancellor sat down, markets woke up again and we did see fairly steady gains for the pound as the afternoon went – although this is being explained as much as a story of US dollar weakness yet again rather than a euphoric vote of confidence in the cuts.
POTENTIAL FOR VOLATILITY
There is still the potential for some volatility as the further details of the plans are revealed – for example today sees what the proposed banking levy is going to mean for that particular sector, where shares have fallen somewhat out of favour with investors in recent months on a valuation basis. Overall there were no nasty surprises.
We have seen the City this year go from distinct nervousness faced with the prospect of a hung parliament ahead of the general election to cautious optimism in the months since it became a reality.
For now at least, it looks like the new Chancellor is being given the opportunity – and a bit of breathing space from markets – to see if these plans really can sort out the UK’s deficit.
David Jones is chief market strategist at IG Index.