GBP/USD strengthens on UK Autumn Budget and OBR projections

• GBP/USD strengthens as markets digest UK Autumn Budget and revised OBR projections.
• Budget includes the third-largest medium-term tax increase since the OBR was created.
• UK Chancellor Rachel Reeves aims to lower borrowing while avoiding austerity and raising taxes on savings, dividends and property income.

The British Pound (GBP) edges higher against the US Dollar (USD) on Wednesday as markets digest the United Kingdom’s Autumn Budget, with traders weighing fresh fiscal measures and updated economic projections.

At the time of writing, GBP/USD is trading around 1.3200 after sharp two-way price swings earlier, triggered when the Office for Budget Responsibility (OBR) mistakenly released its Budget forecasts ahead of schedule, prompting a brief bout of volatility before stabilising.

The OBR said the Budget delivers the third-largest medium-term tax increase as a share of Gross Domestic Product (GDP) since the body was established, with the freeze on personal tax thresholds now extended through 2030-31 and tax measures expected to raise £26.1 billion by 2029-30.

The OBR now expects GDP to grow by 1.5% in 2025, stronger than the 1% projected earlier this year, but forecasts for the subsequent years have been downgraded from the levels anticipated in March.

Growth for 2026 is now seen at 1.4%, down from 1.9%, while 2027 is forecast at 1.6% compared with the earlier 1.8% projection. The estimate for 2028 has been trimmed to 1.5%, versus 1.7% previously, and 2029 is now expected to see growth of 1.5% rather than the 1.8% anticipated in March.

On the inflation front, the OBR revised its projections higher in the near term, now expecting price growth to average 3.5% this year, up from the 3.2% estimate made in March. The outlook for next year has also been lifted to 2.5% from the earlier 2.1% assumption, before inflation is expected to ease back toward the Bank of England’s (BoE) 2% target from 2027.

In her Budget speech, Chancellor Rachel Reeves said the package would help bring inflation down and stressed that borrowing would fall as a share of GDP in every year of the forecast. She ruled out a return to austerity, pledging to maintain investment in the economy and the health service, while announcing a 2 percentage point increase in tax rates on savings, dividends and property income.

Reeves criticised the previous Conservative administration for what she described as severe economic damage and a doubling of the national debt, noting that the UK’s net financial debt now stands at £2.6 trillion, with one in every ten pounds of public spending going toward interest payments. She said her fiscal framework is designed to reduce borrowing while still supporting growth, with the budget balance expected to shift into a £3.9 billion surplus by 2028-29.

Looking ahead, the reaction in GBP/USD will depend on how investors interpret the balance between firmer inflation projections, softer medium-term growth and what this implies for the BoE's monetary policy stance. The Budget removes near-term fiscal uncertainty and offers a mildly supportive backdrop for Sterling, and with a dovish-leaning Federal Reserve (Fed) outlook keeping the US Dollar on the back foot, the pair could retain a near-term upward bias.