Stronger UK growth will reduce the UK budget shortfall. In turn this will reduce the UK's borrowing needs. There had been hope in some quarters, that Chancellor of the Exchequer Osborne would announce some easing of the austerity drive in the Autumn Statement to be delivered to parliament on Thursday.
Word of a letter that Osborne wrote to the government ministers has been leaked. The letter reveals that he is undeterred and, in fact, is poised to tighten policy further. Departmental budgets will reportedly face additional cuts to the cumulative tune of GBP 1 bln a year for the next three years. Despite the apparent leaks, the Autumn Statement poses greater headline risk than the BOE meeting.
Apparently the first saving will come primarily from unspent budge funds. Health, schools, foreign aid, local government, security and customs are said to be protected. While reducing waste and cost containment may help, the other departments will face cuts of 1.1% in both 2014/2015 and 2015/2016.
A report on the BBC suggests that some of the savings will be used for some of its recent promises, such as marriage tax breaks, more free school meals. There is some speculation that the Chancellor may announced a freeze on fuel duties. The BBC also reports that Osborne will cap the business tax increase in England and Wales to 2% next year, which is just below the 2.2% Oct pace.
After initially retreating to about $1.6330 on the back of contrasting data, with the UK somewhat disappointing service PMI (60 vs. 62.5) and a stronger than expected US ADP data (215k vs. 170k expected), It recovered to trade just above $1.6400 before consolidating. Resistance is seen in the $1.6440 area that stopped the sterling express on both Monday and Tuesday. Trend line support is seen near $1.6300.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.