The awaited UK autumn budget was finally announced yesterday. What a couple of weeks back looked to potentially become an eventful day for markets – in the end was treated with less volatility than a couple of years ago when Lizz Truss had markets crashing up to 8%. It might have stuck to markets mind and the build up was bigger than the outcome. With that said, the main talking points from the Autumn budget was;
- Higher national insurance for employers
- Increased minimum wage
- Increased stamp duty for second home purchases
The first two points will more than likely lead to a jump for inflation levels, increasing minimum wages ultimately leading to employees receiving more disposable income and having more purchase power, i.e. spending. The increase of national insurance for employers firstly impacts companies need to balance these additional costs and the burden tends to be placed on the consumer – higher prices. There is also a possibility that we can see pressure on the job markets. Companies being forced to reduce staff costs, that will increase potentially forcing people out of employment.
So how did the markets react over the day to the announcement? GBP/EUR opened on Wednesday around 1.2020 and fell through the day to a low off 1.1940. Markets has since then retract and is currently sitting at around 1.1960 (0.5% drop from yesterday’s high).
After the Autumn budget, the Office for Budget Responsibility (OBR) updated their prediction for economic growth in the upcoming years. Since the budget, the outlook for the UK is looking worse – expectations are that UK’s economic growth will start to show a slowdown in the start of 2025.
Moving on to today, the higher impact data is for Europe and the US. First out we core inflation and inflation levels for the Euro zone. The outlook for Europe’s economic growth has been shown signs of difficulties recently, but yesterday we saw German GDP unexpectedly increase in the third quarter and this was then followed this morning by stronger retail sales than what was forecasted for October. Injecting some stability into the EUR, which has taken losses against the GBP and USD in the last few weeks. Could this lead to that both core inflation and inflation levels will increase for Europe? Well forecasting suggest we should see a slight increase from September up to 1.9%. This could in short-term boost the EUR against other currency pairs.
GBP/EUR 1.1981 GBP/USD 1.2989 GBP/AED 4.7614
GBP/AUD 1.9735 GBP/CHF 1.1217 GBP/CAD 1.8047
GBP/NZD 2.1714 EUR/USD 1.0851 GBP/ZAR 23.0057