Wednesday’s Spending Review shouldn’t be a big moment for financial markets, ING’s FX analyst Francesco Pesole notes.
Tax rises loom in autumn budget
“We already know how quickly investment and departmental budgets will rise over the next few years, and today’s announcement simply tells us how the overall pot gets divvied up. But it will emphasise that when it comes to day-to-day spending, there’s not enough cash to go around, and more money will need to be found at the Autumn Budget.”
“Added to which, we think the Treasury’s slim fiscal headroom against its fiscal rules has fully evaporated and tax rises will be needed later this year to plug the gap.”
“The GBP lost some steam after soft UK jobs data yesterday. Budget events often stir gilt market volatility, so EUR/GBP might get a bit of bullish momentum and test 0.850 in the coming days.”