Mini-budget

The Chancellor's mini-budget: What does this mean for my business?

Thanim Islam
Thanim Islam 12 October 2022

In these times of political and economic uncertainty, it can be difficult to keep up with the market, let alone consider how changes affect your business. 

On the 23rd of September, we saw the biggest set of tax cuts in the UK since 1972 as Chancellor Kwasi Kwarteng unveiled the new government’s mini-budget. In the SME space, many businesses will benefit from the cut in their National Insurance bills as well as the rollback of the scheduled hike in corporation tax which will now remain at 19%.

But for importers and exporters, the mini-budget has not been so kind with volatility rising across sterling pairs.

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What’s happened to sterling pairs? 

GBPUSD

GBPUSDSource: Bloomberg Finance L.P.

GBPUSD crossed below the 1985 low during the 8% drop across Friday and Monday trading sessions before recovering by 10% a week later. 

GBPEUR

GBPEURSource: Bloomberg Finance L.P.

GBPEUR hit the lowest levels seen since April 2020, dropping over 5.5% at its peak before recovering over 6% a week later.

What happened to the pound?

Since the initial panic selling of sterling immediately following the mini-budget, markets have calmed down. The Bank of England took action by conducting emergency quantitative easing in the form of buying 30-year government bonds (gilts) and delaying the start of quantitative tightening back to October 31st (selling of gilts).

Simply put, conducting emergency quantitative easing means the Bank of England intervened in markets. Bonds were being sold off in a panic because markets were overly concerned of how the government would fund the tax cuts proposed in the mini-budget. To stop the panic selling, the BoE got in the markets and started buying them.

On the other hand, quantitative tightening is the selling of government bonds by the Bank of England to tighten monetary conditions and reduce the amount of money in circulation. Raising interest rates is another form of tightening monetary conditions, and at the moment, the Bank is raising interest rates as a method of fighting rising inflation. However, as a result of the mini-budget, they’ve delayed the selling of bonds back to October 31st. 

Where’s next for the pound?

Ultimately for the pound to rise, markets need to feel confident in the UK’s ability to fund the new fiscal package. The Chancellor and the OBR will be releasing their medium-term fiscal plan on November 23rd.

Should they disappoint, then we could easily see the pound come under pressure and an attempt for markets to test the recent lows.

What does this mean for my business? 

As mentioned, many SMEs will benefit from the tax cuts proposed in Kwarteng’s mini-budget because they’ll have reduced National Insurance bills. Additionally, the rollback of the scheduled hike in corporation tax, which will now remain at 19%, is better news for SMEs. However, with those businesses dealing in import and export, the volatile movement of the pound over the past few weeks has been a real challenge.

Volatility is an unwanted by-product when importing and exporting, and unpredictable and unfavourable exchange rates cut directly into a business’ profit. With under a month left until we hear the Chancellor’s fiscal plan, a lot can happen. 

You can read more about rate volatility and what that means for your business here. 

How can Equals Money help? 

At Equals Money, our in-house currency experts are here to help you. We monitor the market for you and let you know how current changes affect your payments to help you navigate volatile currency markets. 

We also offer a number of hedging solutions to help you manage risk when dealing with foreign exchange, such as market monitoring, the Equals Money Rate Watch, forward contracts, and market orders. Your own dedicated account manager will guide you through all your options so you can make the best decision for your business.

You can’t control what happens in the market - but you can control how you manage volatility and take care of your company. Equals Money is here to help you with your finances so you can spend less time worrying about rates and more time growing your business.

If you’d like to stay up to date on market news, you can sign up for our daily market report email or follow us on LinkedIn.

Request a quote