IFX Market Report: Monday 9th October 2023

According to a survey conducted by the British Chambers of Commerce, UK businesses are hesitant to make significant investments in machinery and new technology. They cite the ongoing trade barriers with the EU and high interest rates as the main reasons for their reluctance. The survey reveals that the majority of respondents have either put their investment plans on hold or reduced them, with only 23% considering injecting fresh capital to enhance their operations.

New data from the Office of National Statistics (ONS) indicates that the UK economy performed better than initially reported in the first quarter of the year. Economic growth from January to March was 0.3%, surpassing the initial estimate of 0.1%. This means that the UK economy is expected to have grown by 1.8% from the final quarter of 2019 to the second quarter of this year, outpacing Germany (0.2%) and France (1.7%) during the same period. However, it still lags behind Italy (2.1%), Canada (3.5%), Japan (3%), and the US (6.1%).

The extension of the HS2 rail line to London Euston is contingent on securing sufficient private investment for the project. Without private funds, the high-speed line will only run from Birmingham to Old Oak Common in London's western suburbs, requiring passengers traveling to central London to make a transfer. The government has expressed a need to reassess plans for Euston, citing the unaffordability of previous designs for a "gold-plated" station. The number of planned platforms for high-speed trains has already been reduced from 11 to six.

New analysis suggests that the UK is heading towards its largest tax increase in at least half a century due to frozen personal thresholds and soaring inflation. The Resolution Foundation predicts that taxpayers will contribute approximately £40 billion annually by 2028, up from the £30 billion forecasted during Chancellor Jeremy Hunt's budget announcement in March. The government's policy to freeze income tax and national insurance thresholds until 2028 means that many individuals will be pushed into higher tax brackets due to inflation. This comes as Mr Hunt ruled out significant tax cuts this year, despite calls for a pre-election giveaway at the Conservative Party conference.

A survey suggests that the euro zone economy likely contracted in the last quarter, as demand experienced its sharpest decline in nearly three years. Rising borrowing costs and higher prices caused indebted consumers to rein in their spending. The Composite Purchasing Managers' Index (PMI), compiled by S&P Global, rose slightly to 47.2 in September from August's 46.7, but it remained below the 50-point threshold that separates growth from contraction for the fourth consecutive month. The downturn was widespread, with both services and manufacturing output declining. Additionally, official data showed that retail sales in the euro zone fell more than expected in August, indicating weaker consumer demand amidst high inflation.

In the US, the workforce added 336,000 jobs last month, significantly exceeding expectations. The largest economy in the world demonstrated resilience in the face of higher interest rates. Hiring accelerated sharply in September, with non-farm payrolls increasing nearly double the rate anticipated by economists. Additionally, readings for July and August were revised upward, with 236,000 and 227,000 jobs added, respectively.

The markets have remained fairly range bound over the past couple of weeks with GBPUSD moving between 1.21 & 1.2250, and now residing at 1.2170. GBPEUR has traded in the 1.15 region peaking around 1.1570, whilst EURUSD briefly touched 1.0490 but currently resides at 1.0520.

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