29 October 2024: Will this be the most depressing Budget ever?

No matter what tomorrow’s Budget holds, it must be said that the Government has not tried to “sweeten the pill. Even yesterday, the Prime Minister told reporters that taxes would be increased. He also told reporters that he cannot guarantee that taxes won’t rise again in the future.

He said that the actions being taken are to avoid the kind of austerity seen over the past fourteen years by providing public services with adequate funding. However, his Health Secretary, Wes Streeting, was quoted as saying that tomorrow’s tax rises will not be sufficient to get the NHS back to where it was ten years ago.

Nonetheless, the government has announced more details of this week’s NHS budget, including £1.57bn for new surgical hubs, scanners, and radiotherapy machines.

The funding is part of the government’s overall plan to increase the number of NHS hospital appointments and procedures in England by 40,000 per week.

If the comments from ministers are to be believed, this may well be the most depressing budget in history.

Commons Speaker Sir Lindsay Hoyle has reprimanded Chancellor Rachel Reeves for giving interviews to reporters in the US about her upcoming Budget.

Parliamentary rules say major government announcements should be made to MPs in the Commons, ahead of journalists.

An exasperated Sir Lindsay said failing to do so was a “supreme discourtesy to the House” and he was “very, very disappointed” with Reeves.

Responding to the criticism, the prime minister’s spokesperson said it was “entirely routine for the government to make announcements in the run-up to Budgets and spending reviews”.

He added that Parliament would have “all the requisite time to scrutinize measures”.

Since Rachel Reeves has never presented a budget before, she may well have the best poker face of any Chancellor, going back to the first more than seven hundred years ago. The country may mop its collective brow in relief and move on, but that is extremely unlikely.

As recently as yesterday, Starmer announced that the cap on bus fares would be increased by 50% from £2 to £3, as his Party continues to announce measures that are most “unlabourlike”.

Once the budget is out of the way, but probably while its ramifications are being felt, the Bank of England’s Monetary Committee will meet next week to consider the next rate cut.

Andrew Bailey is fast becoming one of the G7’s toughest central banks to read. Over the past month, the market has been flip-flopping trying to decipher the comments made while Bailey keeps his own council.

The pound reacted positively to the dollar’s pause for breath yesterday. It reached its recent high of 1.3001 but fell back to close at 1.2972.

As the “blackout” period approaches for next week’s FOMC meeting, its members are not taking the opportunity to provide the market with advance guidance as to their voting intentions.

Market observers believe that their comments since the last meeting, at which rates were left unchanged, point towards a similar outcome this time.

Jerome Powell has doubtless been chastened by criticism of the decision to cut the Fed Funds rate by fifty basis points in July since the Employment data which was published a few days later showed that the economy was performing more than adequately.

The FOMC will have the benefit of seeing the October Employment Report before next week’s decision, but any reaction may well be blurred by the Presidential Election result.

They may well have to consider the effect of the policies of the new President, which won’t take precedence over the jobs data but will have a longer-lasting effect on monetary policy.

Jamie Dimon, the CEO of JPMorgan Chase, the prominent Wall Street Bank, has taken on the role of cheerleader for those calling on the Fed to loosen monetary policy sooner as he believes that there was a recession approaching.

Speaking yesterday, he changed his tune to show concern about the remaining threat that inflation poses to the U.S. economy.

He said that inflation is not “going to go away”. He went on to launch a major attack on the Biden-Harris administration, criticizing the “barrage” of red tape that the regulator has imposed upon the financial sector. “It’s time to fight back,” Dimon told a conference of bankers in New York.

“Many banks are afraid to fight with their regulators because they would just come and punish you,” he added.

The Presidential Candidates continue to push hard in the seven “swing” states that will most likely determine the result of the election.

Both say they are ahead in the polls while promising additional Federal Funding for depressed parts of the seven states.

As they close on the finishing line, the vote will likely be at least as close as the 2019 election. It may well be that the candidate who polls the most votes may not become President, as was seen in the last election.

The dollar took a breath yesterday as traders contemplated the likely effect of the events over the next ten days.

It traded between 104.57 and 104.12, closing marginally lower at 104.31.

Several members of the ECB’s Governing Council may be considered as “influential”, and their numbers are increasing.

While the Council was in “hawkish mode” it was left to Austrian Central Bank Governor, Robert Holzmann to put the case for fighting inflation, and he received backing from the heads of the German and Latvian Central Banks.

Now, the focus has changed, and the ECB is concentrating on growth since inflation has reached, albeit temporarily, its 2% target. Several members are happy to discuss their expectations for further cuts following the seventy-five basis points of cuts that have already taken place.

Klaas Knot, the Governor of the Dutch Central Bank has been a “fence sitter”, during the hawkish period but has become an advocate of looser monetary policy.

The most dovish members of the press corps who follow the comments of Governing Council members believe that there could be a cut at every meeting until the end of the second quarter of 2025.

This could take the headline rate to close to 2%.

Meanwhile, Christine Lagarde has hit upon the threat of tariffs on exports as a method of deflecting questions regarding the next rate cut.

At the recent International Monetary Fund (IMF) annual meeting, European Central Bank (ECB) President Christine Lagarde delivered a stark warning about the rising tide of trade restrictions and their potential impact on the global economy.

She expressed concern over how these barriers could rekindle inflation and complicate the already challenging economic environment.

According to Lagarde, increased trade restrictions aren’t merely abstract issues, they could significantly affect wallets, particularly for businesses reliant on imported goods.

With trade barriers on the rise, the ECB has been closely watching the trends.

Analysts within the bank have suggested alarmingly high potential losses globally if the trend continues. They noted the possibility of up to a 6% decline in global GDP if countries persist with protectionist measures.

The ramifications could escalate, potentially reaching a staggering 9% loss if conditions worsen, placing immense pressure on central banks trying to manage inflation.

There have been major concerns voiced in the German Economy Ministry over Volkswagen’s announcement yesterday that they plan to close three factories with the loss of thousands of jobs. The announcement was made by the Carmaker’s union representative.

This will doubtless darken the mood in the German manufacturing sector, which has already seen its output slump in recent months.

The euro is now trading water as the market assimilates the events on the other side of the Atlantic. Yesterday, it rose to a high of 1.0827 and closed at 1.0812.

Have a great day!