Substantial fiscal consolidation a risk for UK and Sterling
UK Chancellor of the Exchequer, Rachel Reeves faces a range of headwinds that will make it
harder to meet her fiscal rule for a current budget balance by 2029/30; recent Labour
government reversals on planned welfare cuts, likely downward revisions to the OBR’s
projections for UK GDP growth, questionable plans for restrained spending from 2027 onwards
and finally higher gilt yields and borrowing costs.
Hence, it is quite possible the November 26th Budget will be forced to set out a larger package
of tax rises and spending cuts, exceeding the £20bn (0.7% of GDP) currently anticipated. If so,
this poses a downside risk not only to our forecast for 1.3% UK GDP growth in 2026, but a more
aggressive fiscal consolidation could also bear down on sterling, gilt yields and perhaps
persuade investors the Bank of England has greater scope to cut interest rates.
Read the weekly in full here: