Rishi Sunak has committed to initiating tax reductions as he prepared for this week's Autumn Statement and outlined strategies for the upcoming UK general election. The prime minister expressed optimism that Chancellor Jeremy Hunt would unveil cuts to personal taxation on Wednesday but emphasized the necessity for any reductions to be implemented in a "sustainable" manner. Conservative MPs are urging Hunt to decrease income tax or national insurance rates in the Autumn Statement, partially offsetting the reductions through a decrease in welfare spending. Sunak noted that the latest official data indicated inflation was under "control."
In today's news, it has been revealed that Britain borrowed nearly £15 billion to balance public finances last month, surpassing expectations. However, borrowing for the current financial year is almost £17 billion lower than forecasted, providing leeway for potential policy adjustments in tomorrow's autumn statement.
The governor of the Bank of England has cautioned that UK interest rates will need to remain elevated for an extended period despite a significant decline in the annual inflation rate. Andrew Bailey, speaking on food prices in London, stated that there is more work needed to bring inflation back to its 2% target, and there is a lingering risk that borrowing costs might have to rise in the coming months. Bailey emphasized that it is too early to consider rate cuts.
Despite these statements, investors have moved up their expectations for the European Central Bank and Bank of England to commence interest rate cuts following indications of potential stagnation in the eurozone and the UK. The US Federal Reserve, along with both central banks, opted to keep rates unchanged in their recent policy meetings, buoyed by slowing inflation and cautious of the time it takes for previous monetary tightening to impact consumer demand and economic growth.
On Friday, the government announced £4.5 billion in funding for British manufacturing to boost investment in eight sectors across the UK. This funding, available from 2025 for five years, offers the industry long-term certainty regarding their investments.
Tuesday's news revealed that the Consumer Price Index (CPI) in the US decreased from 3.7% in September to 3.2% in October. Crucially, the "core" measure dropped from 4.1% in September to 4% in October, reaching a level last observed in September 2021. While these figures suggest that US inflation has not quite reached the Fed's 2% target rate, they have heightened expectations that the central bank may not need to raise interest rates further, even prompting speculation about an earlier start to potential monetary policy easing. The markets are currently pricing in US interest rate cuts as early as May next year.
The news of the US data saw the dollar weaken off across the board with EURUSD moving over the past few days from around 1.07 to 1.0950. GBPUSD saw a similar pattern with the pair moving from 1.23 to 1.2530. GBPEUR currently resides at 1.1445.
News this week includes US FOMC minutes tonight and UK PMI data on Thursday, whilst the Bank of England monetary policy report is released this morning
