"There are, to be fair, a number of clear positives for the pound as we move through January. November's Budget, while still attracting criticism in places, has primarily been greeted with a palpable sense of relief. Markets had braced for a much harsher package of tax rises, and the fact that the outcome was less severe has helped to draw a line under months of harmful speculation."
"Financial markets have echoed this calmer tone. UK gilts have steadied, with bond yields falling to their lowest levels in more than a year as concerns over the public finances ease. That reduction in risk premium has been supportive for sterling. At the same time, however, inflation has re-entered the conversation. December's CPI print surprised on the upside at 3.4%, the first increase in five months."
Sterling has risen sharply, reaching its highest level against the dollar since October 2021. November's Budget produced relief by avoiding much harsher tax increases, which has reduced uncertainty and helped restore confidence among businesses and consumers. Early indicators show improvement: the S&P flash UK PMI composite output index for January hit a two-year high, monthly GDP for November rose 0.3% month-on-month, and retail sales advanced into December, suggesting pent-up activity is emerging. UK gilt markets have calmed, with yields falling and risk premia narrowing, supporting sterling. December's CPI rose to 3.4%, reintroducing inflationary concerns that complicate the outlook for monetary easing.
Read at London Business News | Londonlovesbusiness.com
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