Originally published on 16 October; last updated on 27 November
The 2025 autumn budget has now been unveiled. With the details finally confirmed, the pound saw a modest relief rally following some initial volatility as markets reacted to the long-awaited announcement.
The end to months of uncertainty over the contents of the budget, as well as upwardly revised growth forecasts for 2025, underpinned Sterling, with GBP investors also relieved that Chancellor Rachel Reeves’s second budget did not trigger a spike in UK bond prices.
The rise in the pound helped to reverse losses seen earlier in the day after parts of the budget were leaked when the Office for Budget Responsibility (OBR) accidentally published its report two hours early.
While the FX response to the budget has been modest so far, Sterling may see more notable movement in the coming days as markets have more time to digest Reeves’s tax and spending plans and assess their medium-to-long-term economic impact and how they may influence Bank of England (BoE) monetary policy.
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Speculation around the UK’s autumn budget has had a big impact on the pound in recent months, as Chancellor Rachel Reeves looks to plug a £20bn hole in the public finances.
Concerns that tax hikes and spending cuts could choke off growth have hurt GBP, while worries about ballooning government debt and the challenges of passing politically unpopular measures have woken the bond vigilantes.
In particular, news of a cut to productivity forecasts from the Office for Budget Responsibility (OBR), a vague pre-budget speech from Reeves, and some screeching policy U-turns have weighed heavily on Sterling.
GBP/USD fell to a seven-month low in early November, while GBP/EUR struck a two-and-a-half-year low and then refreshed this in the middle of the month. Both pairings remain close to recent lows as the budget approaches.
The pound will therefore be acutely sensitive to the measures unveiled by the Chancellor on Wednesday, with bond market movements, growth concerns, and the political fallout all presenting risks.
When is the UK budget?
The UK’s 2025 autumn budget will be unveiled in the House of Commons on Wednesday 26 November. The announcement typically begins around 12.30 PM UK time, after Prime Minister’s Questions (PMQs).
What will be in the UK budget?
Speculation over possible budget measures has been rife in recent weeks, with the government seemingly trailing and then abandoning some policies. While we won't know the specifics until the budget is announced, the Chancellor will almost certainly be raising taxes.
Reeves is looking for ways to raise revenue without increasing ‘taxes on working people’, in line with Labour’s manifesto commitment, having scrapped plans to hike income tax while reducing National Insurance. Instead, the Chancellor may opt for freezing income tax thresholds for an extra two years, meaning people will be dragged into higher tax bands as wages rise. Although not technically raising taxes, this is often called a 'stealth tax'.
The budget could also contain measures to make salary-sacrifice schemes less generous, raise taxes related to expensive properties, and bring in a levy on electric vehicles.
Tax rises for businesses and landlords, as well as changes to capital gains tax and inheritance tax, are also possible revenue-raising measures.
Spending cuts are also likely to be considered, although the government faced a rebellion when it tried to push through welfare reform earlier this year. That said, Reeves is set to lift the two-child benefit cap, perhaps to sugar-coat cuts elsewhere, while launching a crackdown on benefit fraud.
Markets aren’t expecting any material increases to borrowing or adjusting of Reeves’s self-imposed fiscal rules, as the Chancellor wants to show that she’s fiscally responsible and avoid any more bond market routs.
Will the budget affect the pound?
The UK autumn budget will almost certainly affect the pound. Fiscal policy can impact investment, growth, inflation, bond markets and political stability – all of which have a significant impact on GBP exchange rates.
How could the budget impact GBP?
The budget will likely stoke volatility in the pound as investors react to the new measures and how they are received by economists, the bond markets, and Labour backbenchers.
Overall, we expect the impact to be broadly negative for the pound, although it depends on how well Reeves can balance the need for fiscal responsibility with the government’s drive for growth.
Part of Labour’s manifesto pledge was that it wouldn’t raise income tax, National Insurance or VAT. It now looks as though the government can stick to these commitments, thanks to a smaller-than-expected deficit. The budget hole Reeves needs to fill is estimated to be around £20bn, rather than the feared £30bn to £35bn.
However, this limits the tax levers the Treasury can adjust, meaning most of the tax rises expected in the budget could be linked to business, investment and assets. If such measures draw criticism from leaders in industry and finance, concerns about the UK’s growth outlook could drag on Sterling.
In addition, politically unpopular measures – such as freezing income tax thresholds or spending cuts – also present risks to the pound. There is even speculation that Starmer could face a leadership challenge if the budget lands badly. Sterling could slump amid such political uncertainty, although a challenge seems unlikely until after the May local elections.
GBP investors will also be alert to how the bond market reacts to the budget. Rising gilt yields in recent months have reflected unease about the UK’s fiscal position, which in turn has weighed on Sterling. If Reeves can reassure investors, a pullback in yields would suggest renewed confidence in the UK’s public finances – a sign that could support Sterling.
However, if the tax rises and spending cuts are deemed insufficient to get the public finances back on a sustainable footing, bond vigilantes could punish the Chancellor, hurting the pound in the process.
The budget will be accompanied by the Office for Budget Responsibility’s forecasts, which could make for bleak reading. The OBR carried out a review of its forecasting models over the summer, and many are bracing for a significant downgrade to British growth and productivity. If the OBR’s economic and fiscal outlook paints a worrying picture of the UK economy, Sterling could slide.
Finally, tighter fiscal policy often encourages central banks to react with looser monetary policy. Therefore, tax rises in the budget could raise the likelihood of faster and deeper interest rate cuts from the Bank of England (BoE). The pound could face heavy pressure if markets bet on a faster pace of rate cuts from the BoE.
Volatility ahead for the pound
The autumn budget is set to be a major event for the pound, with plenty of moving parts and a high degree of uncertainty. The measures unveiled by Reeves could draw a range of reactions – from cautious optimism among investors if fiscal discipline holds, to renewed anxiety if the growth outlook is grim. As a result, GBP is likely to fluctuate in the immediate aftermath.
Anxiety has been building up ahead of the budget, so there could be a short-term relief rally in Sterling if the Chancellor effectively balances the various challenges. However, given the fragile backdrop, the potential for disappointment, and the likely impact on BoE expectations, a weaker pound remains the more likely outcome.
If you want expert help navigating volatility in GBP exchange rates around the budget, we can help. Contact our team to learn more about the transfer options available and get personalised support for your currency needs.
