The UK economy expanded by 0.1% in August following an unexpected contraction in July. In a boost for Britain’s industry, much of this activity was driven by a strong performance from the manufacturing sector, as well as healthy demand for air conditioning units during a warm summer.
Meanwhile, in a move that surprised no one, Reeves confirmed for the first time that taxes would be on the rise in the autumn budget. However, she laid the blame for this squarely at the door of Brexit and the string of economic missteps the UK has taken over the past decade. Just how acceptable that argument is to the British people may become apparent at May’s local elections.
Still, this fresh round of fiscal realism was enough to send the yield on long-dated gilts (UK sovereign debt, the price of which moves inversely to yields) to a two-month low. Sterling bounced back too, strengthening to its best level this week against the euro and the US dollar.
Much of Wednesday’s action centred around the International Monetary Fund (IMF), which is gearing up for its annual meetings with the World Bank over the weekend. Ahead of those discussions, the IMF’s bi-annual World Economic Outlook report forecast global debt would hit 100% of GDP by 2029.
The IFS followed up that assessment by projecting that Reeves would have to find £22 billion to plug the hole in public finances at the autumn budget. That isn’t as high a figure as some had predicted, but it will still take some meeting with the chancellor looking to build a larger buffer than the razer thin headroom the government was forced to work with last year.
Central bankers were again in the spotlight on Wednesday. Representatives from the Bank of England, the European Central Bank and the Federal Reserve stood behind assorted lecterns, but none were able to provide as impactful a soundbite as Jerome Powell’s surprisingly dovish comments earlier this week.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract or call your account manager on 020 7898 0541 to get started.
