Daily Market View 17-11-2025
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U-Turn on Tax Keeps Pound Under Pressure
GDP-
By dropping her plans to raise income taxes the Chancellor has given herself a more narrow route to success. Whilst the measure would have been deeply politically unpopular, the weight of the tax burden is now likely to shift towards business, for the second budget running.
This comes at a time when unemployment is already at 5%, making the long run outlook for UK employment even worse, increasing the chances of future BoE rate cuts and weakening the long run GBP outlook.
What may also act against the Pound is Reeves' need to increase the treasuries "fiscal buffer", essentially cash above what the government necessarily needs, but kept as a buffer against sudden fiscal shocks.
The margin of these buffers has gradually declined as the UK deficit worsens and they became nearly razor thin following the pandemic era spending. A significant increase to this buffer would act to reduce some of the risk premium present on UK bond yields, lowering yields and so weakening their attractiveness to yield hunters.
This poses another threat to GBP's outlook, an outlook which seems to gain a new threat everyday.
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