GBP/USD edged higher on Wednesday as markets absorbed the United Kingdom’s Autumn Budget, with Sterling finding support despite sharp intraday volatility triggered by an early release of economic projections from the Office for Budget Responsibility (OBR). At the time of writing, the pair trades near 1.3200 after recovering from a brief spike in uncertainty.
UK budget delivers major tax increases and revised growth outlook
The OBR said the Autumn Budget represents the third-largest medium-term tax increase as a share of GDP since the institution was created. The freeze on personal tax thresholds has been extended through 2030–31, with new measures expected to raise £26.1 billion by 2029–30.
Growth projections for 2025 were upgraded to 1.5%, up from the 1% forecast earlier this year, reflecting improved near-term economic momentum. However, the outlook beyond 2025 was revised lower compared with the OBR’s March projections. The agency now sees GDP expanding 1.4% in 2026 (down from 1.9%), 1.6% in 2027 (vs. 1.8%), 1.5% in 2028 (vs. 1.7%) and 1.5% in 2029 (vs. 1.8%).
On inflation, the OBR lifted its near-term expectations, forecasting price growth at 3.5% this year – up from March’s 3.2% estimate—and 2.5% next year, compared with 2.1% previously. Inflation is projected to drift back to the Bank of England’s (BoE) 2% target from 2027 onward.
Reeves prioritises stability, rejects austerity and targets fiscal surplus
Chancellor Rachel Reeves said the Budget aims to bring inflation down while ensuring that government borrowing declines as a share of GDP each year. She emphasized that there will be no return to austerity, pledging continued investment in key sectors including health. The Budget also includes a 2-percentage-point increase in taxes on savings, dividends and property income.
Reeves sharply criticised the former Conservative government, arguing that the UK’s financial position had deteriorated due to mismanagement, with national net financial debt now at £2.6 trillion. She highlighted that around one in every ten pounds of public spending is now needed to service interest payments. The government’s fiscal framework aims to reduce borrowing steadily, with the budget balance expected to shift into a £3.9 billion surplus by 2028–29.
Market outlook: sterling supported as fed outlook stays dovish
With the Budget reducing near-term fiscal uncertainty and offering a clearer policy trajectory, Sterling has gained modest support. However, the market’s interpretation of firmer inflation forecasts and weaker medium-term growth will shape expectations for the BoE, which remains cautious given persistent price pressures and moderating economic momentum.
At the same time, a dovish-leaning Federal Reserve (Fed) continues to weigh on the US Dollar, helping GBP/USD maintain an upward bias. If US data remains soft and the Fed stays on track for rate cuts, Sterling may find room to extend gains in the near term.
