The recent dip in inflation to 4.60% last Wednesday signalled a notable shift in the recent economic narrative of Britain. Andrew Bailey, the Governor of the Bank of England, cautioned against assuming that UK inflation would continue to decrease as swiftly as some are currently predicting. He emphasized that it was premature to consider implementing rate cuts, expressing lingering concerns about the potential persistence of inflation. Moreover, there were no indications in the budget that suggested a change in this perspective.

Across the Atlantic in the United States, Federal Reserve officials remained hesitant to definitively state that they had concluded their series of rate increases. Their recent decision to extend a pause in rate hikes, coupled with minutes from the latest policy meeting, hinted at a potential stance of keeping rates steady for the rest of the year. Analysts are now speculating on when the central bank might find an opportunity to lower rates next year.

The Euro-zone is grappling with sluggish economic growth, posing heightened risks to financial stability amid rising interest rates, as warned by the European Central Bank (ECB). The consequences of the ECB's historic monetary tightening could exert additional pressure on household incomes, corporate revenues, and public finances if the economy continues to fall short of expectations.

Shifting to the geopolitical landscape, veteran Dutch anti-Islam politician Geert Wilders pledged to become the Prime Minister of the Netherlands after his party won the most seats in the recent election. Wilders has consistently expressed his desire for a Dutch referendum on EU membership, and the looming prospect of this referendum is casting a shadow on the stability of the single currency.

In currency markets, GBP/USD reached highs of 1.2550 this week, while GBP/EUR remains solidly supported at the 1.1500 level.