Market Report - 01/11/2024
Labour announce Autumn budget ; US economy adds 12k jobs
As we come to the end of another action packed week for the FX markets, with data releases and key risk events in the economic calendar. Below is a summary of the key events and the impacts that followed:
Starting in the UK; Wednesday saw the Labour Government deliver their first budget in almost 15 years. The highly anticipated Autumn budget generated some optimism in the market in the hours prior to Rachel Reeve’s statement and saw the Pound’s value bolstered. Reeves set out plans to tax, borrow and spend more money over the next five years as an attempt to protect public services and boost investment.
The chancellor stated that the UK had voted for “change” and pledged “more pounds in people’s pockets” and the only way to drive economic growth is to “invest, invest, invest”.
She revealed that the budget will raise taxes by £40bn, with increases to employers National Insurance contributions by 1.2%, up to 15% from April 2025. The Labour government have also introduced a reduction to the secondary threshold when contributions are due from £9,100 to £5,000.
The chancellor revealed an increase in the amount of tax paid when buying second homes, to provide support for first-time buyers and those moving home. Second-time buyers previously paid three per cent stamp duty on homes worth up to £250,000. From Thursday 31st, they will pay five per cent tax. The increase will also apply to those purchasing buy-to-let residential properties, and companies purchasing residential property.
The bigger story came with increases in Capital gains taxes; it was announced that CGT’s lower rate of 10% will be increased to 18%, whilst the higher rate will be increased from 20% to 24%. The Government will also extend a freeze on the threshold for inheritance tax to 2030, allowing £325,000 to be inherited tax free. From 2027 inherited pension pots will also be subject to the tax. In addition to this, an announcement to increase the national living wage for over-21’s was made, this will increase by 6.7% to £12.21 p/h, which is equivalent to £1,400 per year.
Finally, Ms Reeves revealed new rules to not borrow for day-to-day spending of the country and announced the government will run a deficit of £26.2bn in 2026, but will achieve a surplus of £10.9bn in 2027-28, £9.3bn in 2028-29 and £9.9bn in 2029-30.
Following the announcement, the Pound weakened against major pairs and prompted a sell-off in UK govt bonds. The market estimate of around £80bn of govt borrowing was revised upwards, to a much larger figure of £142bn which could be attributed to the Pound sell-off. At close on Wednesday GBPEUR had fallen 0.72% to 1.1937, and GBPUSD was down half a per cent at 1.2961.
Elsewhere in the UK, it was announced that house prices growth slowed last month, surprising economists who had expected faster increases, according to one of the key measures collected by a lender. Prices grew by only 0.1% in October, according to the Nationwide. Which is less than the 0.3% rate that economists polled by Reuters. The annual rate of growth slowed from 3.2% in September to 2.4% in October, below the 2.8% expected by economists.
In the US this afternoon, it was announced that in October only 12,000 jobs were added to the US economy. This number is far fewer than expected for the month and raises significant questions in the days leading up to the US presidential election which takes place next week. Economists had expectations of 113,000 jobs to be added so there is a huge discrepancy in the numbers. The US Bureau of Labor Statistics (BLS) added the important caveat that the jobs reading is the first since Hurricanes Helene and Milton hit the US (in particular the state of Florida).
The low numbers of jobs added to the economy have raised a lot of questions and certainly give perceptions of a weaker US economy, which is then in turn makes the Federal Reserve even more likely to lower interest rates next week. Elsewhere, off the back of this shock announcement, the US dollar is trading 0.3% lower against a basket of currencies after initially climbing over the course of today. Meanwhile GBP is now trading 0.5% higher against the greenback, while the euro is up 0.1%.