LONDON: The U.K. unveiled an ambitious £30 billion stimulus package to spur economic growth as the country emerged from lockdown, but the rise in sterling will be fleeting as the revamp measures do little to alter the growth outlook, ING warned.
GBP/USD rose 0.61% to $1.2616.
“While the size of the stimulus announced is modestly larger than expected, in our view it is not significant enough to prompt further GBP gains,” ING said.
The analysts said the stimulus measures “don’t significantly” alter their U.K. growth outlook and estimated that the uncertainty over U.K.-EU trade negotiations, the “over-riding driver” of the pound would continue to weigh on the currency.
Others agreed, and said the measures, which sought to boost jobs, construction, house prices and consumption, do not reach far enough to avert the looming consequences of coronavirus-related economic problems.
“We think the real challenge will come when the furlough runs out and structural change in the economy due to this pandemic, but also the fall-out from Brexit, could cause a marked increase in unemployment,” said Western Asset’s Andreas Billmeier. “We don’t think the announced retention bonus will have any impact on those structural forces.”
The business community is unlikely to ramp-up spending as the government’s long term plans remain uncertain.
“Further support for the economy is clearly welcome given the challenges it faces,” said Mark Gregory, EY U.K.’s chief economist. There is “unlikely to be an increase in business investment until we have a clearer view of the government’s long-term vision and plans for the U.K. economy.”