GBP steady ahead of UK Autumn Budget – BBH

FXStreet Insights Team FXStreet

Pound Sterling (GBP) remains steady ahead of the UK Autumn Budget, with tax hikes expected to dominate and increased gilt sales likely, leaving GBP under pressure against major currencies, BBH FX analysts report.

Sterling faces pressure amid fiscal and economic drag

"GBP and gilts are steady ahead of the UK Autumn Budget showdown. To shore up the deteriorating fiscal position, the government is expected to prioritize tax hikes over spending cuts. The two key factors that will matter for GBP will be the extent of the projected fiscal drag next year (measured by the change in the cyclically adjusted primary budget) and the planned amount of total new gilt sales."

"For reference, the Spring Budget (released in March) forecasted a cyclically adjusted primary budget balance of -0.6% of GDP for 2025/26 and 0% of GDP in 2026/27, implying a fiscal drag of -0.6% of GDP next year. Debt financing for 2025/26 was calculated to be met with £299.2 billion of total gilt sales. Analysts expect 2025/26 gilt sales to be increased by between £6bn and £15bn."

"Bottom line: we expect GBP to keep underperforming most major currencies. Contractionary UK fiscal policy and disappointing domestic economic activity will leave room for the Bank of England to deliver more easing than is currently priced in (62bps in the next twelve months)."

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FXStreet Insights Team

FXStreet

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