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Pound eyes Chancellor Statement

Pound eyes Chancellor Statement

The main event today will be the UK Chancellor’s Autumn Statement scheduled for 12:30. We expect the Office for Budget Responsibility to announce new GDP growth forecasts that will be reduced sharply. Despite this, headline borrowing numbers for this fiscal year should be lower due to a number of one-off windfalls, including the recent announcement of a transfer of interest from Bank of England QE holdings of bonds to the Treasury.

Depending on how they are treated, these windfalls could also help keep the government meet its two main promises on the public finances. If the OBR chooses to exclude the windfalls, it is likely that the government will be off target for reducing the debt to GDP ratio by 2015/16. Similarly, it is touch-and-go whether it will be on target to balance the cyclically-adjusted budget within five years. Even so, we are unlikely to see any meaningful change in the tone of policy as the government seems committed to austerity.

The composite purchasing managers’ index, or PMI, for the 17-nation euro zone rebounded in November from a 40-month low but continued to signal a deep contraction in private-sector output. The euro-zone services PMI rose to 46.7 from 46.0 in October and topped the preliminary estimate of 45.7. Overall, the data indicate the euro-zone recession deepened in the current quarter.

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