With talks between the UK and EU still at an impasse, the National Institute of Economic and Social Research (NIESR) has released a report today detailing what impact a no-deal Brexit could have on government spending.
According to analysts at NIESR, crashing out of the EU could leave a shortfall of £30bn in government coffers over the next five years, greatly reducing potential spending on public services and potentially jeopardising the extra £20bn the government has earmarked for the NHS.
The report comes just days before Chancellor Philip Hammond is set to deliver his Autumn Budget.
A sizable drop in government borrowing this year had left GBP investors hopeful that the Chancellor would have some more room to maneuverer in 2019, something which may need to be rethought in light of today’s report.
At the same time, the euro remains in a position of strength against the pound this morning in light of Mario Draghi’s confident remarks on inflation yesterday.
Speaking at a press conference the European Central Bank (ECB) President said rising wages and a tightening labour market suggests the Eurozone will see a sustained pick up in underlying inflation in the months to come.
Mr Draghi also dismissed fears of a slowdown in the Eurozone, suggesting that the bloc was only experiencing weaker momentum and not a downturn, and similarly dismissed fears over the Italian budget stalemate.
Looking ahead to next week’s session, the pound may get a bit of a reprieve from Brexit as investors turn their attention towards the Bank of England’s November rate decision.
While no policy changes are expected this will be the bank’s first decision since UK labour figures revealed domestic wage growth jumped to a nine-year high in August and investors will be eager to learn if this will have any bearing on the BoE’s outlook.
Meanwhile the release of the Eurozone’s latest GDP estimate on Tuesday is likely to set the tone for the euro next week.
The single currency could potentially struggle if growth in the bloc slows in the third quarter as recent data would suggest it has.