Yesterday the main UK public sector net borrowing measure (PSNBX) came in close to expectations at £8.7bnin November, some £0.2bn down on year-ago levels. The market consensus had been for a £9.0bn reading and our forecast £8.9bn. Back revisions published for the current fiscal year were unfavourable but overall pretty small; for the fiscal year to October, they raised PSNBX by a little under £1bn. The detail of yesterday’s figures showed current spending up 3.6% y/y and 3.1% up over the fiscal year to date whilst underlying current receipts growth stood 5.0% higher y/y in November and 4.1% up over the first 8 months of the 2017/18 year. Indeed, despite the relatively lacklustre pace of economic growth, tax inflows have held up relatively well. Overall yesterday’s borrowing data look to provide a decent footing for the Chancellor just a month after his first winter Budget. Indeed, the Chancellor looks to be on track to achieve an even slightly improve on the Office for Budget Responsibility’s (OBR) Budget time prediction of a 2017/18 borrowing total of £49.9bn. But clearly, as we flagged in our year ahead note, Chancellor Philip Hammond’s goal of balancing the books in the medium term remains a challenging one.

In yesterday’s vote in the Catalan elections, pro-independence parties won back control of the regional government. The three separatist groups won 70 seats in the 135 seat assembly, restoring the majority lost in October when Spanish PM Rajoy used Article 155 of the constitution to push out the pro-independence administration before it could press ahead with independence. PM Rajoy’s People’s Party suffered in the vote losing eight of 11 lawmakers whilst Ciudadanos (anti-secessionist) emerged as the single largest party. Overall the result deals a blow to Rajoy who had called the election to try and settle tensions and pro-independence momentum after the 1 October independence referendum. Catalonia is not necessarily any closer to independence following the result, but the outcome certainly will not help Rajoy with his aim of settling tensions in the region and independence momentum more generally. It remains to be seen what Rajoy's next move will be. The Euro weakened a bit overnight following the result but has recovered most of those losses since; €:$ stands at $1.1857.

The week ahead

As ever over the festive season, releases during Christmas week are relatively few and far between. For those that are in from the 26th/27th or who want a very brief glance backwards the following week, we would check preliminary German and Spanish inflation data on Fri 29th. Higher inflation readings across the eurozone might well prompt more ECB talk about policy normalisation, with consequences for eurozone (and other) financial markets.  

Thought of the day

A publicly traded company named Long Island Iced Tea Corp - which as the moniker implies is based on Long Island and makes iced tea - is changing its name to Long Blockchain Corp. and wants to buy some firms in the cryptocurrency business. Off the back of this news, the stock surged almost 200%. While it's clear that Blockchain technology is important and that Bitcoin and other cryptocurrencies like Ethereum, Litecoin and Ripple are not going away, could there be too much hype surrounding Bitcoin and Blockchain? Bitcoin has dumped from the 17th December high of $19,370 to $12,500 this morning! Has the bubble burst? Or is this the time to buy on the dip? 2017 was the year for the Euro. The Euro survived political uncertainty, cut QE, and even suggested that they are not far from interest rates returning to neutral. What will be the best performing currency of 2018? To discuss this and ways to manage your FX risk, please give your Investec Dealing team a call on 0800 055 6339.