Investors prepare for the Budget and rate decision
It could be a busy week ahead for economics, politics, markets and currencies
Next week will see investors digest both the Budget on 29 October and the Bank of England’s latest decision on interest rates on 1 November. Chancellor Philip Hammond may be spared some more difficult decisions after reports in the Financial Times that revisions to the Office for Budget Responsibility’s forecasts for public finances would reduce the 2018-19 deficit by £13bn.
The risk of the Budget being voted down by the Conservative Party’s partners in the Democratic Unionist Party (DUP) seems to have eased for now after the recent EU summit on Brexit came and went without any of the DUP’s so-called red lines being crossed.
Brexit is likely to influence the Bank of England’s upcoming decision on rates, when Governor Mark Carney will also offer an updated view on the outlook for the economy and inflation.
The most likely scenario is that Carney will take a cautious stance until the outcome of Brexit negotiations is known.
A no-deal Brexit may not prompt a cut in rates to shore up the economy; instead it may force an increase in rates to counter the inflation caused by any resulting slump in sterling.
On 22 October Prime Minister Theresa May told MPs an exit deal was ‘95% done’. That last 5% could be tricky to get over the line, with the EU’s insistence on a ‘backstop’ aimed at avoiding a hard border in Ireland appearing to be the main, complicated sticking point. (TS)