Pound South African Rand Rises as UK Surplus Reaches 17 Year High

The Pound (GBP) to South African Rand (ZAR) exchange rate rallied on Tuesday as the UK’s Public Sector Borrowing figures showed that Britain’s January surplus reached a 17 year high.

Sterling Strengthened by Borrowing Figures

The Pound rocketed higher today as rising tax revenues caused the Britain’s budget surplus to hit its highest level since the series began.

The government’s budget soared from a £4.24bn deficit to a £9.82bn surplus in January and although initial estimates had predicted that the surplus would reach £14.4bn over the period a decision by the Office for National Statistics (ONS) to change the method of measurement, effectively caused the forecasts to become irrelevant.

The sudden jump was largely caused by self-assessment tax receipts which are due in at the start of the year, generally causing January to be a strong month for the UK’s finances.

The rise has also caused some economists to revise their expectations for the current financial year as they now predict that the government will beat its £68bn deficit forecast, which will likely be reflected by the Office for Budget Responsibility (OBR) in Chancellor Philip Hammond’s March Budget.

South African Rand Slides As Political Infighting Threatens Annual Budget

The South African Rand suffered on Tuesday over concerns that South African President Jacob Zuma could derail his finance minister, Pravin Gordhan’s annual budget in the latest continuation of a long-running feud between the two.

Gordhan seeks to reign in state spending in order to keep the country’s investment-grade credit rating and avoid the toxic junk rating. Meanwhile Zuma want to increase spending on government projects as he pushes for a ‘radical economic transformation’ targeting poverty and inequality in the emerging economy.

Investors fear that the feud could lead to Zuma firing Gordhan as he reportedly plans to sign in Brian Molefe, the former chief executive officer of the state power utility as a new lawmaker, paving the way for him to added to the president’s cabinet. However such a move could be disastrous for the Rand after previously removing Nhlanhla Nene from the post. As John Ashbourne, an economist at Capital Economics Ltd explained;

‘To sack one respected finance minister may be regarded as a misfortune. Sacking two looks like a conspiracy against the economy.’

GBP ZAR Forecast: UK GDP Ahead

The GBP ZAR exchange rate will likely look to hold on to its recent gains tomorrow following the release of the UK’s latest GDP report which is expected to hold at 2.2% in the fourth quarter, although should growth fall behind expectations then Sterling is likely give up some ground.

Meanwhile the South African Rand may extend its losses on Thursday as domestic Producer Prices are expected to fall from 7.1% to 6.55% January, bringing an end to the recent run of rises over the last couple of months.

Current Exchange Rate

At the time of writing the GBP ZAR exchange rate was trending around 16.35 and the ZAR GBP exchange rate was trending around 0.06.