Pound boosted by hot inflation

The UK’s headline inflation rate increased to 3.5% in September, driven by the highest motor fuel prices since the summer of 2022. While not exactly positive news for the chancellor and the economy, this morning’s figures did provide a further boost to sterling, which yesterday strengthened to its best rate against the euro since May 2025.

Top of John Healey’s priorities at the Budget next week will be controlling the cost of living. His scope to do so looks pretty limited, with both this morning’s data and the fall in unemployment bolstering the case for higher interest rates. Several media outlets reported yesterday the chancellor had ruled out raising capital gains tax, leading to predictions this would be a rather low-key Budget.

We also heard this morning that government net borrowing came in above forecasts at £24bn as high inflation and turmoil in the bond market continue to wreak havoc. There has plenty of speculation about the slim spending envelope available to the chancellor, so this will likely sharpen focus around the government’s fiscal headroom, i.e. the amount of money it can spend without breaking its self-imposed borrowing rules.

The temperature in France appeared to cool yesterday as police noted effective curfews across major cities. More protests are planned for Saturday and have now spread to Italy, where the government is planning to send 500 troops to ‘defend Milan’ over the weekend.

It’s been a wild couple of days for tech investors, as the mood around AI flits from euphoric to anxious. Major stock markets stabilised yesterday after Elon Musk’s SpaceX exceeded its quarterly revenue projections. Meta is next to report results today.

Voters in Canada’s Alberta province roundly rejected independence in the recent referendum. With over 90% of votes counted, about 75% voted to remain a part of Canada, providing an emphatic response to the question of the oil-rich state’s future.