UK Chancellor Rachel Reeves gave the strongest indication yet that she would raise taxes to plug the government’s spending deficit at the autumn budget.
Speaking at the Labour party’s annual conference in Liverpool, Reeves again highlighted the “tough choices” the government faced. While effectively ruling out an increase to VAT, she argued that recent history showed she could not ignore the bond market. Almost to emphasise her point, the pound strengthened by half a cent against the US dollar and euro on Monday morning before falling back to parity by the end of the day.
The chancellor will at least be comforted by news that economic growth and business investment were better than expected in the last quarter. This morning’s data revisions saw GDP growth revised up from an annualised 1.2% to 1.4%. Business investment fell in the same period but still increased by 3% on a yearly basis.
The United States also has its own spending decisions to make. Congress must agree a short-term budget by midnight or face another all-too-common government shutdown. Yesterday, the president met with Democrat representatives, who are holding out for more money on healthcare, in an effort to force a deal.
Israeli Prime Minister Benjamin Netanyahu was another that made the journey up Capitol Hill yesterday. He discussed a 21-point plan to end the war in Gaza, part of diplomatic efforts that Republicans believe will soon bear fruit. Trump and Netanyahu urged Hamas to accept the deal or Israel would “finish the job”.
Overnight, the Reserve Bank of Australia decided to keep interest rates unchanged at 4%, as expected. The Aussie dollar strengthened against the pound in yesterday’s session but was little changed immediately after the decision.
A sparse start to the week from an economic point of view ends today with a handful of key eurozone inflation reports. In the afternoon, the latest JOLTs job openings report from the US is sure to impact the US dollar.
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