​EBC Markets Briefing | Sterling wobbles with Labour budget around the corner

Sterling was flat on Friday as Labour's first budget is due out next week. The party's refusal to rule out several potential tax changes has weighed on UK assets recently.

The BOE may need to reassess the conditions if fiscal policy turns out so tight that the growth could be burdened, though optimism is gaining ground about Chancellor Reeve's attempt to avoid austerity.

Furthermore, economists expect the central bank is to cut rates at a faster pace than previously expected as key data releases has indicated inflationary pressures are finally easing.

As of Tuesday, money markets had fully priced in a quarter-percentage-point rate cut for the next meeting in November, and put a high probability on a cut of the same size at its December meeting.

Goldman Sachs forecast rate cuts notably below market pricing, seeing consecutive easing taking the benchmark interest rate to 3% as early as September 2025 from the current 5%.

Figures published last week showed services inflation dropped from 5.6% to 4.9% in September. That helped bring the headline inflation down to 1.7% in the month, the lowest in more than three years.

The pound was trading well below its descending trendline and below the low of 1.3002 hit in 11 September, indicating the outlook remains dim. The initial support lies around 1.2900.

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