After a tepid sort of week on the currency markets, with little overall movement against the euro or US dollar, we’re back into a period of high-level data for the UK economy.
Last week the Bank of England (BoE) opted, narrowly, to keep interest rates at 4%. But can we price in a reduction at the next meeting on 18 December? Not yet. Although the majority was only five to four, the BoE said that more evidence was needed that inflation is coming down.
Currency-wise the big winner from last week was the euro, which gained against all of its main rivals. The big loser was the New Zealand dollar (NZD) which weakened by between 1% and 2% against most pairs (although it was only down 0.25% against the pound). The reason for that was similar to sterling’s – it’s a currency that falls alongside stock markets, especially in its main trading partner, China.
Following chancellor Rachel Reeves’ clear warning that tax rises are coming in the Budget, now just over two weeks away, the speculation has moved from whether taxes rises are coming (they are) to what happens when they do. Can she avoid resigning, for example, when it was such a clear manifesto pledge? Can Starmer avoid the blowback risking his position too?
It could be a febrile fortnight ahead. As for the week ahead, we have unemployment and earnings tomorrow, with the UK already with the highest unemployment since the pandemic, analysts expect it to worsen. On Thursday it will be GDP.
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