After weeks of rumours, hints and U-turns, the UK government’s tax and spending plans for the year ahead will be revealed on Wednesday. It’s a pivotal announcement that will impact how investors view the pound.
Latest insights:
This is considered one of the most pivotal Budgets in years, with investors looking for measures that encourage stability and growth. But with a financial hole to fill, it could be a tricky balancing act for the Chancellor to pull off. Wednesday could see exchange rate fluctuations as details emerge.
With just two days to go till the 26 November Budget, Chancellor Rachel Reeves has been hinting at some of the ways she intends to “grip the cost of living” while also putting UK public finances on a firmer footing. It is expected that Reeves will attempt to plug the government’s financial hole in several ways, including freezing tax thresholds, hiking taxes on expensive homes and introducing a pay-per-mile scheme for electric cars.
She was given a pre-budget boost last week thanks to better-than-expected inflation figures, with UK headline inflation dropping to 3.6%. That may pave the way for a Bank of England interest rate cut before the end of the year. For the moment, markets will watch the budget closely, with investors looking for reassurance that public finances are in hand.
The pound slides:
Uncertainty around the Budget, and the inflation slowdown, led to sterling slipping to a near seven-month low against the dollar last week, with the greenback continuing its recent momentum. The pound is also down by about 1.10% against the euro over the last month. The euro fell against the dollar, as investors weighed up the prospect of another imminent US interest rate cut.
The week ahead:
In the UK, the week ahead will be dominated by the much-anticipated Budget, with investors focusing on predictions and best guesses in advance of the Chancellor’s statement and concrete facts afterwards.
Elsewhere, key indicators expected in the US this week include retail sales and consumer confidence (Tuesday). In the EU, investors will be looking out for data on financial stability (Wednesday) and economic sentiment (Thursday).
Lastly, talks in Geneva surrounding the plan for Ukraine will be a source of volatility throughout.
