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Pound rallies as Sajid Javid resigns as Chancellor

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Written by: Paloma Kubiak
13/02/2020
Sterling has spiked against the dollar following the unexpected resignation of Sajid Javid as Chancellor of the Exchequer, just a month before the Budget.

The pound initially dipped but has climbed to $1.30 as part of Prime Minister Boris Johnson’s cabinet reshuffle where he announced Rishi Sunak MP’s promotion to the post following Javid’s resignation.

Reports suggest the move was triggered by Downing Street threatening to sack his advisers at the Treasury.

It could also stem from Javid’s reluctance to increase public borrowing by cutting taxes and increasing spending, according to independent analysts, Capital Economics.

Paul Dales, chief UK economist at the firm, said Sunak’s views may be more aligned to those of Johnson and the Conservative party as his voting history reveals he’s a staunch Brexiteer, supports reductions in corporation tax, cuts to capital gains tax and he also favours infrastructure investment.

Dales said: “The move seems designed to allow the government to push through even bigger increases in public investment and perhaps resuscitate tax cuts that previously looked dead in the water.

“So this is either going to be a meeting of minds or Sunak will be the PM’s yes man living in Number 11.

“We already thought that the Budget on 11 March would involve an extra loosening in fiscal policy worth 0.5% of GDP, which coming on top of the extra government spending announced in September 2019 would mean a fiscal boost of 1% is in the pipeline. It’s now possible that the Budget will provide a bigger bang.”

Tom McPhail, head of policy at Hargreaves Lansdown, said the new Chancellor’s lack of power base and rapid ascent of the political ladder increases the chance of bold and populist spending announcements in the Budget.

He said: “The trade-off is it probably also increases the likelihood of targeted tax raids to pay for the Prime Minister’s largesse. Javid had been reported to be examining some potentially contentious policy moves, such as a mansion tax and cuts to pension tax relief for the wealthy and I think today’s announcement escalates that risk.”

Javid, MP for Bromsgrove, was Chancellor for less than a year, taking up the post in July 2019. Sunak, MP for Richmond, is the former chief secretary to the Treasury and previously served as the minister for local government.

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