International payments face PBR effects

The chancellor's announcement that UK GDP will fall by 4.75 per cent this year has had an impact on foreign exchanges.

Alistair Darling said in his Pre-Budget Report (PBR), delivered in parliament today, that the public deficit will increase by £178 billion this year, up from the initial estimate of £175 billion.

The pound had fallen by 0.3 per cent against the dollar to reach $1.623 by mid-afternoon, dropping by a cent in the aftermath of the chancellor's speech.

Sterling also marked similar losses against the euro, falling 0.4 per cent to €1.103.

A further deterioration in Britain's public finances is likely to weaken the pound, a trend which would have knock-on effects for sterling-denominated international payments.

In the PBR, Mr Darling also announced that National Insurance would increase by 0.5 per cent in April 2011 and that VAT would revert to 17.5 per cent from January 2010.

Banks will also face a one-off tax of 50 per cent for all staff bonuses exceeding £25,000.

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Posted by Tom Papworth