On Wednesday, Chancellor Rachel Reeves will unveil the long-awaited Autumn Budget. Uncertainty around the budget has driven notable volatility in the pound (GBP) in recent weeks, so the announcement could rock GBP. In addition, the latest Eurozone and US GDP figures could add to the volatility.
At the time of writing, GBP/EUR is strong, though it has retreated from the 30-month high hit earlier in the month. GBP/USD has recovered from the two-month low struck last week, but remains subdued.
What will be in the Autumn Budget?
Last week Reeves confirmed plans to change the government’s fiscal rules to enable increased investment spending – a move widely welcomed by markets. However, it’s unclear how much she intends to borrow under the new rules.
Markets also anticipate a ‘painful’ raft of tax hikes – including increased employers’ national insurance, capital gains tax, and inheritance tax – to fund struggling public services.
How could this impact the pound?
We could see notable volatility in the pound as markets digest the Autumn Budget, particularly with so much uncertainty surrounding the announcement.
Rising taxes could dent GBP, particularly if Reeves goes further than expected. However, increased investment spending may offset the downside. Meanwhile, any measures seen as inflationary could boost the pound, as they may mean that interest rates remain higher for longer.
There is also the risk that increased borrowing unsettles bond markets, although Reeves is likely to avoid a ‘mini-budget’ style meltdown.
Wednesday also brings the third-quarter GDP results for the Eurozone and the US, which could further fuel volatility. Eurozone growth is expected to remain weak at 0.2%, while the American economy is forecast to expand by 3%. This could see the euro (EUR) slide and the US dollar (USD) surge.