After a week of big data releases, it was the smallest one that caused the biggest waves..
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| Finally a data surprise this week, just not the one the UK/£ needed..
UK costs to public services, benefits and government debt interest repayments all unexpectedly increased (and significantly so) in August. It means last month was the second highest August on record for borrowing, after the covid shock of 2020.
Government finances are deteriorating, with the overall deficit for the year now standing at £83.8bn, £11.4bn higher than the expected forecast. Spending for August was 9.2% higher than August last year and this comes after an extra 5.7% YoY in National Insurance contributions.
The UK's debt is now at 96.4% of GDP.
Taxing isn't keeping up with spending and so either further taxes will arrive in November or the government will spend less. Financial markets have looked at the release very negatively and rightly GBP is weaker for it.
UK retail sales offered another expected modest bump, but with the big picture still showing UK consumers are not spending close to pre-pandemic levels, no change was seen in the Pound's price.
The BoE kept interest rates unchanged yesterday with both the voting and forward guidance talk coming out as expected too. There was so much data and key data at that released this week and the smallest one of the lot was the only surprise and the only one that created any volatility. You can't make it up!
GBP v EUR is now trading at a 5-week low with GBP v USD at a 2-week low..
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