Sterling ticked higher on Thursday after British lawmakers backed Prime Minister Boris Johnson’s tax hikes and was set to end three straight days of losses.
The pound had extended its fall on Tuesday after the announcement of a tax hike to fund health spending and social care.
Higher taxes could theoretically ease pressure on the Bank of England to begin tightening monetary policy as they might slow down the pace of the economic recovery.
A number of analysts and economists believe, however, that the impact of the measures will be limited and don’t amount to a game changer for the currency.
“I don’t think it’s going to be a major issue for the business cycle”, said Kallum Pickering, a senior economist at Berenberg, noting that funding healthcare was an issue the country needed to address sooner or later.
“It seems to me the market isn’t viewing it as a big deal and I don’t think it’s a big deal either”, he said, noting yields on UK government bonds had risen slightly and that, given the strength of the recovery, UK consumers would likely be able to cope.
Under the proposal, the rate of National Insurance payroll taxes paid by both workers and employers will rise by 1.25 percentage points, with the same increase also applied to the tax on shareholder dividends.
It is expected to raise 12 billion pounds ($17 billion) a year.
By 0855 GMT, sterling was 0.24% higher at $1.3804. Against the euro, it was up 0.10% to 85.70 pence.
The euro generally edged higher on Thursday before an expected reduction in the pace of the European Central Bank’s bond buying, while the dollar mostly held to recent gains as concerns about the global economy sent traders into currencies deemed safer.
– Reuters