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The pound strengthened after the chancellor delivered the autumn Budget.
The Office for Budget Responsibility (OBR) dropped an unprecedented clanger yesterday, mistakenly releasing its fiscal forecast before Rachel Reeves had stood up to deliver the autumn Budget in the Commons. The OBR would later apologies for a breach that took markets by surprise and left MPs passing notes along the benches.
Remarkably, that was the bumpiest things got across Wednesday. The chancellor’s announcements arrived as advertised, offering a smorgasbord of tax rises that sought to rebuild the slender fiscal headroom and chip away at the cost of living. A freeze on income tax thresholds, tweaks to pension contribution schemes and a new “mansion tax” took the tax burden to 38% of GDP – a record high.
Despite the false start, news that the fiscal buffer would reach a more typical level by the end of this parliament helped smooth things over for the pound. Sterling recovered from a minor wobble to post a positive day against a basket of its rival currencies.
Bond markets – which hold the key in determining the government’s borrowing costs – were almost as twitchy-fingered as the OBR. 30-year gilt yields shot up to almost 5.4% around Midday before settling closer to 5.2%. Reeves and her team will likely view this reaction as a massive tick given scrutiny around the public finances.
So, that was the reaction. But what would the Budget mean for the economy? As expected, the OBR revised its medium-term productivity growth forecast down from 1.3% to 1% and 2026 full-year GDP forecast down from 1.9% to 1.4%. At the same time, the OBR’s growth forecast for this year was boosted from 1% to 1.5%.
Away from the UK, today is a key day in the Ukraine war, with officials in Kyiv indicating they would agree to President Trump’s peace plan following a round of significant changes. Trump has set a deadline of today for settling the conflict, although there still appear to be sizeable differences between Ukraine and Russia’s demands.
And finally, there’s a simple explanation for wonky US tech valuations, according to the European Central Bank (ECB). Fear of missing out (or FOMO to those versed in such things) has driven investors to pile into AI stocks like Nvidia, Open AI and Alphabet.
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GBP: Relief boosts sterling
The furore around the Budget has cast a long shadow over the pound for some time. With the Budget finally out of the way, sterling strengthened by about half a cent against the US dollar and euro on the absence of any nasty surprises. Just how long the relief will linger remains the key question.
GBP/USD: the past year
EUR: Germany needs deeper reform
Germany’s economy requires more wholesale change than just government spending, the International Monetary Fund (IMF) said yesterday. Analysts believe that further bold reforms both domestically and at the EU level would be necessary for Europe’s largest economy to wake from its slumber.
GBP/EUR: the past year
USD: Orders keep flowing
The US dollar remained under pressure from interest rate bets yesterday. That was despite a surprisingly strong showing in September’s durable goods report, which beat market forecasts to increase by 0.5% month-on-month.
EUR/USD: the past year
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