FX.co ★ Sterling Falls on Budget Uncertainty

The British pound experienced a decline, falling to approximately $1.315 on Friday, as concerns over budget uncertainties grew. This came after reports indicated that Chancellor Rachel Reeves might abandon plans to increase income tax. The decision aligns with improved projections from the Office for Budget Responsibility, which has revised the anticipated fiscal deficit from an estimated £35 billion to about £20 billion. Reeves is anticipated to uphold Labour's commitment to not altering headline income-tax rates. Instead, she might implement threshold adjustments and modify salary-sacrifice programs to generate additional revenue. Initially, she had devised two budget scenarios—one involving significant tax increases and another with more modest adjustments. She is now opting for the latter approach. The cabinet is set to debate the budget on November 26, considering policies such as exit taxes and limited liability partnerships. Meanwhile, market expectations for the Bank of England's rate cuts have moderated, showing roughly a 75% probability for a December adjustment. Nonetheless, increasing gilt yields continue to challenge the UK's fiscal strategy, placing pressure on the pound as the budget announcement nears.