This week has been a heavy one. We started on Monday with the funeral of our late Queen and ended with a ‘mini-budget’ from the UK Government, with multiple worldwide interest rate raises sandwiched in between.
The biggest news came yesterday when the Bank of England raised interest rates from 1.75% to 2.25%- a 0.5% rise. This was in line with some expectations, yet many believed they would have gone further and raised them by 0.75% (like we recently saw in both the US and Eurozone). Interest rates are now at their highest levels since 2008. The announcement was delayed by a week owing to the period of mourning for the late Queen. This week also saw the BoE declare that it believed that the UK was now in recession.
This morning the UK Chancellor of the Exchequer delivered what was in effect a mini-budget. The ‘Fiscal Event’ was the new government led by Liz Truss setting out its economic policies. The Chancellor announced a raft of big changes including the cancellation of the planned Corporation Tax rise, the scrapping of restrictions on bankers bonuses, cutting Income Tax rates at all levels and changes to Stamp Duty. This marks an ideological shift in the government’s approach and a return to the policies of ‘trickle down economics’ favoured by Margaret Thatcher and Ronald Reagan.
Immediately following the news we saw the Pound slide further against the Dollar which is now at a 37 year low. Over the course of the week we saw a 3 point drop. Having started at £1.14, it now ends at £1.11. Sterling has been less volatile against the Euro however we have still seen a negative response to the Chancellor’s announcements, seeing a drop down to £1.13 against the Euro. Experts don’t expect to see any positive moves in the next week.
Next week we can expect to see GDP figures in the UK released as well as GDP and unemployment numbers from the USA and CPI data out of Germany.