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Rachel Reeves will deliver a make-or-break Budget on Wednesday (Fred Duval / Shutterstock).
When it came to pre-Budget prep, the chancellor could hardly have had a worse Friday. New figures showed UK government borrowing overshot expectations in October. Combined with a significant fall in retail sales, the latest data dealt a fresh blow to the public finances and the chancellor’s hopes for a smooth week.
Wednesday will finally put an end to months of Budget speculation. Will Rachel Reeves be able to keep both currency markets and the Labour party on side? We’ll be bringing you all the market reaction shortly after the Budget, so make sure to keep an eye on your emails. It’s sure to be a busy, volatile Wednesday.
The UK’s stock markets felt the effects of the latest data as well as fresh jitters around the tech sector. Just one day after Nvidia’s bumper earnings report, fears spread that global equities were nearing the end of the cycle and were poised for several years of subdued returns. By the end of Friday, stock markets and cryptocurrencies had endured their worst week in seven months.
Things were also strained in Japan, where government debt yields soared in concert with a tumbling yen. The new government and the Bank of Japan have kept stumm up to now, but they may be forced to act to prevent a deeper sell-off.
If there was one ray of light to end last week, it came from the UK’s manufacturing sector, which recorded its first monthly expansion since September 2024. That positive news was tempered by a contraction in the vital services segment. October’s composite PMI came in below expectations in S&P’s study, dragged down by a poor services performance.
For sterling, the week will be dominated by the autumn Budget. Trading is likely to be choppy throughout as anticipation turns into analysis.
The return of meaty US data is the other significant talking point. We’ll see durable goods orders, PPI and retail sales loaded in the first half of a week shortened by the Thanksgiving holiday.
There’s just enough to keep euro watchers interested, too. Two influential studies arrive from Germany in the form of the GfK and the Ifo surveys. France and Italy also report headline inflation data to wrap up proceedings.
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GBP: Rally looks unlikely
For the near term, at least, it’s hard to think of many scenarios that would see the pound strengthen. The chancellor’s watered-down package of fiscal consolidation has already been greeted poorly by the bond market. Aside from another U-turn on tax, it’s hard to see the pound faring much better, although stranger things have happened in these markets.
GBP/USD: the past year
EUR: A disappearing world
European Central Bank president Christine Lagarde was in a poetic mood on Friday, describing Europe’s growth as tied to “a world that is gradually disappearing”. There was truth behind the lyricism, too. Dependent on trade and security pacts, the euro faces up to a new era defined by aggressive regional giants.
GBP/EUR: the past year
USD: Clear splits in the Fed
The US dollar’s week ended on a timid note after the Federal Reserve’s John Williams confirmed he would be pushing for another rate cut at the December meeting. Still, it was a positive week for the US dollar, even if clear splits within the Fed are leading to a little whiplash.
EUR/USD: the past year
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