Sterling benefits from 'the most supportive run of data' of any major economy

Sterling had the most supportive run of data of any major economy last week. Unemployment unexpectedly fell to 4.7%, its lowest in over a year, and regular wage growth ticked up to 3.7%. September inflation rose to 3.5%, above consensus, with core and services both surprising to the upside.

On top of that, the flash composite PMI for October jumped to an eight-month high of 53.1, and firms reported adding staff for the first time in two years. The pound gained against both the dollar and the euro, which is somewhat of an unusual outcome.

We now see a November hike from the Bank of England as largely a done deal, assuming Wednesday’s budget does not contain any major fiscal surprises that roil the gilt market.

Unlike the last couple of Autumn fiscal events, the chancellor seems intent on keeping a low profile and delivering little in the way of surprises.

Tax rises remain unavoidable, though they are likely to be small and targeted and kept to areas that would have minimal perceived impact on Britain’s growth outlook. A modest package of measures that restores a healthy fiscal headroom would be well received by investors and could keep sterling well bid this week.