The British pound traded broadly unchanged on Thursday after Finance Minister John Healey unveiled a cautious budget focused on maintaining fiscal stability and helping households
cope with mounting economic pressures. The announcement, described by market analysts as a “continuity budget”, did little to alter investor expectations or trigger significant movements in UK financial markets.
Healey’s fiscal package combines targeted tax increases with measures intended to ease the pressure of rising household energy bills. The government plans to increase taxes on banks, gambling companies, savers and landlords, while also tightening value-added tax (VAT) requirements for online marketplaces, including Amazon and eBay.
Despite the additional tax measures, investors largely viewed the budget as a continuation of existing economic policy rather than a major shift in the government’s approach to public finances.
Sterling was last trading at $1.3325, virtually unchanged on the day. The currency has performed strongly against its major peers during October, gaining 0.52% against the US dollar and recording a comparable advance against the euro. The euro has consequently fallen to its weakest level against the pound in 17 months.
The single European currency was down 0.1% at 83.62 pence on Thursday, as investors awaited the European Central Bank’s latest monetary policy announcement. The ECB was widely expected to leave interest rates unchanged, keeping attention focused on the outlook for borrowing costs across the eurozone.
Healey’s budget seeks to balance support for households with the government’s commitment to restoring the health of public finances. However, the financial cushion available to meet the government’s principal fiscal target has narrowed considerably. The latest projections put the available headroom at £15 billion, down from an earlier estimate of £24 billion.
The finance minister said the government would use part of this remaining margin while maintaining its fiscal commitments, despite the economic disruption associated with the war involving Iran.
Market participants appeared reassured by the absence of major policy surprises. Barclays foreign-exchange strategist Lefteris Farmakis suggested that the budget’s broadly familiar approach, alongside the possibility of additional fiscal headroom, had reduced the prominence of concerns about Britain’s public finances in investors’ assessment of sterling.
Strategists at BNP Paribas also expressed confidence in the pound’s near-term prospects, arguing that the budget could allow sterling to benefit from perceptions of declining political uncertainty in the UK relative to other markets. The bank said it remained positioned for further gains in the pound against the dollar.
Attention is now shifting towards the Bank of England’s next interest-rate decision, scheduled for November 5. The budget has done little to change market expectations, with money markets fully pricing in a rate increase at that meeting and anticipating a further rise by February.
In the United States, the Federal Reserve kept interest rates unchanged on Wednesday, as expected. Policymakers opted to wait for additional economic evidence before making further adjustments, with inflation still considered elevated. The upcoming US midterm elections and fresh inflation data are likely to influence the timing of future decisions.
For currency investors, the immediate effect of Healey’s budget has therefore been limited. Sterling’s performance will depend increasingly on the relative outlook for UK and international interest rates, the government’s ability to maintain fiscal credibility, and the wider economic consequences of geopolitical tensions.
