The British pound has strengthened against both the dollar and the euro, thanks to a strong run of economic data that has outperformed other major economies. Last week, unemployment in the UK unexpectedly dropped to 4.7%, marking its lowest point in over a year. Regular wage growth also saw a slight increase to 3.7%, while September inflation rose to 3.5%, surpassing expectations. Core and services inflation both exceeded forecasts, adding to the positive economic outlook.
The flash composite PMI for October reached an eight-month high of 53.1, with firms reporting staff additions for the first time in two years. This data suggests a robust economic recovery, which has bolstered investor confidence in the pound. Analysts now consider a November interest rate hike by the Bank of England to be highly likely, assuming no major fiscal surprises in Wednesday’s budget.
The chancellor appears committed to maintaining a low-profile budget, avoiding significant surprises that could disrupt the gilt market. While tax rises are expected, they are likely to be small, targeted, and designed to minimize impact on Britain’s growth outlook. A modest fiscal package that restores fiscal headroom could further support the pound this week.