In­vestors pre­pare for the Bud­get and rate de­ci­sion

It could be a busy week ahead for eco­nom­ics, pol­i­tics, mar­kets and cur­ren­cies

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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)

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