GBP: Welfare bill reversal raises tax hike chances – ING

The UK government scrapped a benefits cut bill that was meant to save £5bn following a revolt by Labour backbenchers. Aside from the potential implications for the stability of PM Starmer’s party leadership, the probability of autumn tax hikes has probably increased further, ING’s FX analyst Francesco Pesole notes.

EUR/GBP remains underpinned by a bullish bias

"The gilt market did not react negatively to the news from the Commons, at least partly thanks to Bank of England Governor Andrew Bailey hinting at a potentially slowing quantitative tightening to give some relief to back-end liquidity. That may have helped shield sterling, too."

"There are no major UK data releases today, though BoE dove Alan Taylor will appear alongside the ECB’s Philip Lane in a Sintra panel. EUR/GBP remains underpinned by a bullish bias, with the welfare reform reversal doing little to alter that outlook. Incoming UK data over the coming weeks will determine whether any push above 0.8600 proves sustainable."