Goldman Sachs: Fiscal Shift Warrants Watching, But Base Case Unchanged

Goldman Sachs note that “the UK chancellor announced a new round of fiscal stimulus aimed at alleviating cost-of-living pressures. This marks a notable shift in stance from the government, and on the margin should help ease the BoE’s dilemma. But, the macro impact is likely to be fairly small (our economists estimate a 0.1% boost to growth and a marginal boost to inflation) and arguably pales in comparison to the significant downside surprise in the UK services PMI, which was the biggest on record. Taken together, we think it is unlikely to significantly alter the BoE’s measured approach, which we have argued is de facto a low real rate, weaker currency policy. We therefore maintain our outlook for relative GBP underperformance. However, we acknowledge that the balance of risks has shifted slightly, particularly if the announcement snowballs into a bigger fiscal policy shift.”