The UK's new government budget is expected to be favorable for the pound, with market analysis suggesting that the pound could rise further before the end of October. On Thursday, October 30, UK Chancellor Reeves will release the Labour Party's first budget proposal of the new government. Foreign exchange analyst Gary Howes believes the market welcomes Reeves' increased budget, which helps support the pound's trajectory.
According to government insiders, Reeves plans to raise about 40 billion pounds (around 52 billion dollars) through tax increases and limited cuts to public spending. This funding will primarily be used to improve public services and fill the budget gap left by the previous government. The aim is to enhance the quality of public services while avoiding further exacerbation of the debt burden.
Previously, UK media reported that Reeves intended to adjust debt policies to make room for additional fiscal spending. This news has already impacted financial markets, with UK gilt yields rising as a result. Consequently, the pound rebounded from Wednesday's nine-and-a-half-week low of 1.2908 to Thursday's high of 1.2972, currently hovering around 1.2955. The market generally expects Reeves' budget to support the pound.
If fiscal policy is indeed adjusted, the market predicts that the Bank of England might slow down its rate-cutting pace. This policy change is expected to affect the future trajectory of the pound. Analysts indicate that from the current market response, the budget proposal's negative impact on the UK economy and the pound is limited. Particularly, with potential increases in investment spending, the market views the budget's long-term benefits positively.
Economists point out that the implementation of the new budget will boost the UK economy by about 0.5 percentage points in 2025. Economic research institution Pantheon Macroeconomics believes this will force the Bank of England to adopt a more cautious approach when cutting rates, possibly maintaining higher interest levels for a longer period. Negative coverage of the budget proposal is gradually fading, and investor confidence is being bolstered.
Prior to the budget announcement, the market anticipates that the pound-to-dollar exchange rate could rise further before the end of the month, possibly reaching the 1.31 level. At the same time, the exchange rate of the pound against the euro could also rise to 1.21. These forecasts reflect the market's overall optimistic view of the new budget, with investors expecting the UK economy to achieve steady recovery under Reeves' policies and support further appreciation of the pound.
