| Interest rates in the euro zone are now 3.25% after Christine Lagarde's central bank cut off a quarter-point this afternoon. It sealed a hat-trick of rate cuts from the European Central Bank in 2024 and markets expect further reductions at every other meeting from now until March. Meanwhile the Bank of England's key rate is at 5% even though UK inflation is level with the euro zone's. Needless to say, a zillion other factors come into play when central bankers debate their policy direction, but cuts from across the Channel — and certainly from across the pond — put added pressure on Andrew Bailey and his team. The BOE makes its next decision in three weeks from today, and among the aforementioned zillion factors it'll be considering is the impact from Labour's budget on Oct. 30. I was surprised to read today that Rachel Reeves' debut fiscal event as Chancellor is likely to have a stimulative effect on the economy compared with existing forecasts. How can this possibly be, I asked myself, given Labour's portentous groans about the state of the public finances and the need for painful decisions to close gaping black holes? What about all these nightmarish, incoming tax hikes?
Well, Bloomberg Economics' Ana Andrade and Dan Hanson reckon that, overall, higher spending and borrowing will offset the rising taxes, potentially giving GDP a 0.3% uplift. You can look up their excellent analysis on the Terminal, if you have one.  Rachel Reeves Photographer: Tolga Akmen/EPA But economics is one thing and politics is another, and while the expectation of fiscal easing may be technically correct, it doesn't match the mood music in Whitehall. Several members of the Labour cabinet would no doubt scoff if you tried to show them the maths — the bottom line is their departments are set for real-term cuts, and they're not happy about it.
It's an unenviable situation for Reeves, but there was some better news for her to digest today. Firstly, the Institute for Fiscal Studies' formidable leader Paul Johnson is stepping down after 14 years of savaging the plans and policies of many an incumbent of 11 Downing Street. That should make post-budget spinning a little easier (albeit depending on who replaces him.) Secondly, Reeves' management of the economy is going down well with certain people — namely, buyers of gilts who have faith in her steady hands. The run up to her budget may be sending shivers around the cabinet, but who needs the warm smiles of friendly colleagues when you have Goldman Sachs on your side? Want this in your inbox each weekday? You can sign up here. | 
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