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Likely to open higher after income tax cut reversal

GILTS
  • This week’s SONIA and gilt market opens are likely to see moves to the upside after the BBC reported that the Chancellor will announce a reversal of the plan to cut the rate of income tax from 45% to 40% for those earning over GBP150,000. Overall this makes no real difference to the fiscal numbers but shows that the PM and Chancellor are at least willing to dial back some of their plan in the light of the clear opposition (from both the public and within the party).
  • We are still looking for a time for the Chancellor to make a speech today (he has one scheduled at 16:00BST but we expect an appearance earlier even if we only have a statement confirmed the income tax plan reversal). This will also increase the market’s hope that the “Medium-Term Fiscal Plan” and publication of the accompanying OBR forecasts due on 23 November will be pulled forward. This week will also see the Conservative Party Conference held through Wednesday.
  • S&P affirmed the UK at AA but changed the outlook to negative, which may limit the rally in gilts a little. In terms of other UK-focused events this week we will have the release of the monthly Decision Maker Panel data for September on Thursday. We will also hear from MPC members Mann (on a panel on Monday evening on monpol) and Ramsden (at the Securities Industry Conference on Friday).
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