Pound Sterling trades with caution ahead of UK Autumn budget statement

The Pound Sterling wobbles ahead of the UK budget announcement, in which the Labour administration is expected to raise taxes and boost spending.

Investors expect the BoE to cut interest rates by 25 bps on November 7.

Market participants await US private employment and Q3 GDP data.

The Pound Sterling (GBP) trades cautiously against its major peers on Wednesday ahead of the announcement of the United Kingdom’s (UK) Autumn Forecast Statement at 12:45 GMT. This will be Labour’s first budget presentation in over 15 years, in which Chancellor of the Exchequer Rachel Reeves is expected to announce a tax hike on various income-generating sources and provide higher spending plans to boost investment.

According to the UBS, the Budget will focus on three key aspects: First, changes in fiscal rules to increase headroom for future borrowing; second, a package of tax increases, probably on capital gains, inheritance, pensions, and – most importantly in terms of additional revenues – national insurance contributions for employers; third, additional spending on investment projects, Reuters reported.

Market participants will mainly focus on the quantum of tax raises and spending budgets to forecast their impact on inflationary pressures. Analysts at UBS expect that higher spending will likely lead to an upward revision in the fiscal deficit to 3.1% of Gross Domestic Product (GDP).

A higher deficit target would deepen fears of price pressures remaining persistent and force traders to pare Bank of England (BoE) dovish bets for the remainder of the year. According to the October 22-28 Reuters poll, the BoE is widely anticipated to cut interest rates by 25 basis points (bps) in its upcoming policy meeting on November 7. This would be the BoE’s second interest-rate cut this year, pushing key borrowing rates down to 4.75%.