The pound’s strong start to last week faded across Thursday and Friday as more troubling government spending figures worsened the chancellor’s headache.
We’re still some way off from the autumn budget, yet speculation is rife. The latest figures take government spending past £80 billion in this tax year alone – far above the income received from tax receipts. Several experts warned that tax rises are now “inevitable”, although Rachel Reeves faces a real conundrum in building the smorgasbord of savings without damaging growth or prompting a Labour rebellion.
Sterling slipped to a five-week low against the euro to end last week and fell to a two-month low against the US dollar. Stronger than expected retail sales (+0.5% month-on-month) couldn’t salvage things for the pound. The euro also saw early gains over the US dollar wiped out by the end of Friday.
UK consumers reported falling confidence, a trend that was backed up by savings data. Households piled over £100 billion into tax-friendly individual savings accounts (Isas) in the 2023-2024 tax year – a 67% rise on the previous year. High interest rates and an unforgiving economic backdrop contributed to the record total.
After all the pomp and pageantry of the state visit, it’s a relatively quiet week when it comes to data. Both Germany and the UK will report crucial PMI data on Tuesday morning. The latest German business climate survey will also likely affect the euro’s progress.
Over in the United States, the main drama is likely to be on Friday with the Federal Reserve’s favoured core PCE price index. After the distraction of last week’s diplomacy, dollar markets should brace themselves for a resumption of the presidential crowing for faster interest rate cuts.
The Bank of England’s Huw Pill and external member Megan Greene will also be making speeches this week. Their remarks should be intriguing (well, in so far as central bankers can be) given the Bank of England’s decision to hold last Thursday.
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