The Chancellor’s appeal to ‘national interest’ may be preparing the country for tax rises
Latest insights:
It seems increasingly clear that Chancellor Rachel Reeves is preparing to break Labour manifesto pledges and raise income tax in the 26 November budget.
Reeves used a major speech last week to talk up the expediency of a tax raid, in a move widely seen as an attempt at expectation management. Other reports suggest Reeves will try to fill the UK’s fiscal gap by targeting employee pension contributions and limiting national insurance exemptions.
The budget could cause exchange rate volatility as markets weigh up the impact of such measures on economic growth and fiscal stability. If markets feel Reeves has got it right, the pound could gain, but the opposite is also true.
US confidence slides
A survey last week suggests US consumer confidence has fallen to its second lowest level on record. US consumers had been growing increasingly concerned by what had become the longest government shutdown in history, though a compromise to end the standoff may now have been reached. Data also revealed that lay-offs had hit a 20-year high for October.
The dollar had a good October against the pound and euro, but growing consumer anxiety may have stalled its momentum. The euro was up slightly against the dollar at the end of last week, recovering from three-month lows. The pound also made slight gains.
Coming up:
As the UK budget creeps closer, markets will keep a keen eye on leaks from the Labour government around tax and spend. The Chancellor is likely to spend the week preparing markets ahead of the announcement, so news can be expected.
The UK will also release key unemployment (Tuesday), industrial production and GDP (Thursday) data this week, with expectations low. As far as the Chancellor is concerned, the UK economy has hit stormy weather at the worst possible time.
EU balance of trade, employment (Friday) and industrial production (Thursday) metrics will also be closely scrutinised in the coming days. Data in the US will be limited due to the government shutdown even if a deal is reached quickly.
