Unclear US macroeconomic picture
Following a data blackout during the government shutdown, new reports offer a mixed picture. September wholesale inflation increased by 0.3%, keeping the annual rate at 2.7%, according to the Bureau of Labour Statistics.
Retail sales rose 0.2% in September, but after adjusting for the 0.3% rise in prices, real spending slipped by 0.1%. Meanwhile, consumer confidence in November dropped to its lowest level since April, as concerns grew over jobs, living costs, and the broader economy.
Overall, market participants focused on whether these developments might strengthen the case for a Federal Reserve rate cut at its upcoming meeting.
UK budget of taxes, gloomy outlook remains
Chancellor of the Exchequer Rachel Reeves presented a budget that raises spending in every year compared to her earlier fiscal plans, while balancing the books through back-loaded tax measures scheduled from 2028 onward.
Key measures include higher welfare spending, most notably the removal of the two-child benefit cap offset by freezing income tax thresholds beyond 2028 and applying National
Insurance contributions to salary-sacrificed pension contributions.
Additional revenue measures include a council tax surcharge on properties valued above £2 million, a pay-per-mile road tax for electric vehicles, and higher gambling sector taxes. Markets reacted positively with the 30-year gilt yields fell sharply, and sterling strengthened against both the US dollar and the euro.
However, the Office for Budget Responsibility downgraded its UK growth outlook, cutting real GDP forecasts by an average of 0.3 percentage points to 1.5% annually through FY2030-31.
Near-term inflation was revised up by 0.3 percentage points, despite fiscal measures reducing FY2026-27 inflation by around 0.4 points; medium-term inflation remains unchanged at about 2.1% from FY2026-27 onward.
Despite Reeves may have placated the bond market with her budget, higher taxes for Britons on everything are unlikely to lift the gloom around the country any time soon.
Eurozone inflation remains on benign path, easing need for rate cut
Eurozone inflation remains on a benign path, a raft of data indicated on Friday, supporting economists’ bets that it will hold around target for years to come and European Central Bank rate cuts expectations continue to dwindle.
Inflation has been hovering around the ECB’s 2% target for most of this year and policymakers see it near this level over the medium-term, a rare success for a bank that struggled with ultra-low inflation for a decade before a post-pandemic surge.
Inflation in France held steady at 0.8% in November, eased a touch to 3.1% in Spain, and was broadly unchanged in many of Germany’s largest states, keeping the overall eurozone figure, to be published on Tuesday, on course for a steady reading at 2.1%.
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