PM’s Speech
Market Commentary
The Prime Minister's Rose Garden Speech
(3 min read)
Sir Keir Starmer delivered a gloomy economic outlook in his speech this week. This came across as being rather political. There is significant uncertainty around the new government’s fiscal/tax and spend regime and we will not get a firm handle on this until the 30th October budget and, until then, media speculation will continue.
The economic reality appears somewhat different to the government’s narrative. Below is a chart I have used before, the Citigroup Economic Surprise Index, which illustrates that recent UK economic releases continue to surprise consensus forecasters to the upside, not to the same extreme as earlier in the summer but certainly comfortably in positive territory.
Markets seemed to take the message in their stride: UK gilt yields increased, suggesting no immediate rate cut was required in anticipation of this bad news and GBP continued its robust performance. GBP strength versus USD is more to do with the latter’s weakness following confirmation over the weekend at Jackson Hole that US interest rates have peaked and we can expect cuts as early as next month. But GBP has been strong against EUR, see the second chart below, and on an overall trade weighted basis too. The UK stock market saw little reaction to the speech and remains stable at close to the all-time high.
It is there for government policy makers to disrupt, but for now the fundamentals look reasonably positive in the UK both in absolute and relative terms.
Peter Geikie-Cobb | Head of Investment Research
Montgomery Associates
28th August 2024
CESI: Citigroup Economic Surprise Index (Aug-23 to Aug-24)
GBP vs Euro over five years (2019 - 2024)
1 Pound sterling currently buys 1.19 Euros (28/08/24)
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