Budget taken in stride by market but big reservations remain
|The Autumn Budget release was taken in stride by market participants, perhaps because much of the content had already been carefully drip-fed over the past couple of weeks. Investors were also comforted by the size of the government’s fiscal headroom (£22bn vs. the previous £9.9bn), which should limit the likelihood of additional tax hikes down the road.
We have three big reservations, however: a) the backloaded nature of the tax hikes, notably the freeze to the income tax thresholds, b) the lack of growth in the budget, and c) Labour’s less than truthful account on the size of the hole in the public finances.
For now, the threat to the gilt market seems to have dissipated, and the removal of the budget uncertainty could provide room for a rebound in the pound into year-end. That said, pressure on Chancellor Reeves’ position means that this is unlikely to be plain sailing, and suggestions of government deception and market manipulation won’t go away any time soon.
There isn't much on tap this week, so focus already shifts to the 18th December Bank of England rate decision, with another cut now almost fully priced in by swap markets.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.