The UK’s new budget leans heavily on fiscal restraint and frozen tax thresholds, with weaker growth forecasts and a slow return to target inflation. The tightening backdrop supports expectations for a cautious BOE easing cycle starting in December, UOB Group’s FX analysts Quek Lee Sue Ann notes.
BOE poised for 25bps cut on 18 December
“UK Chancellor Rachel Reeves presented a budget focused on fiscal discipline amid weak growth and high inflation, prioritizing stealth tax measures and structural reforms while scrapping the planned income tax rate hike.”
“While it was marred by an OBR leak, key forecasts show UK growth at 1.5% in 2025, then 1.4–1.5% through 2030 (downgraded from March), inflation easing to 2% by 2027, and borrowing falling from £138.3bn in 2025–26 to £67.2bn by 2030–31, with a surplus projected from 2029—positioning the UK as the G7 leader in fiscal consolidation.”
“Medium-term fiscal tightening through frozen tax thresholds and wealth taxes will likely curb demand, supporting disinflation and giving the BOE room to start a cautious easing cycle – likely with a 25-bps cut at the next and final meeting of the year on 18 Dec, and thereafter gradual reductions through 2026.”
Source: https://www.fxstreet.com/news/gbp-reeves-delivers-tight-budget-amid-weak-uk-outlook-uob-group-202512010929
