British Pound Pops Ahead UK Chancellor Reeves Speech
Trading on recovery line on Monday, the British pound strengthened to $1.343 ahead of UK Chancellor Rachel Reeves’ Labour conference speech, as investors brace for signals on fiscal strategy before the November 26 budget.
Sterling has been underperforming since around the middle of September, ING analyst Chris Turner said in a note on Monday, with plenty of focus on whether the UK is ‘going bust’ or will require an IMF bail-out – neither of which is likely.
Turner said at the heart of that story is weak UK growth and parlous public finances, which leave the UK Labour government with very little room for manoeuvre.
Last week, Prime Minister Keir Starmer’s main rival, Andy Burnham, hinted that that the government should ignore the bond market. Yields on U.K. government bonds turn lower after a selloff last week that lifted 10-year and 30-year yields to their highest level in three weeks.
Gilts are helped by a recovery in risk appetite, with stocks rising as investors look ahead to U.S. jobs data, where any weakness could reignite rate-cut prospects. The market now looks forward to signs that the government will cede ground to the left wing of the party.
Speaking to BBC and Bloomberg, Reeves reaffirmed her pledges not to raise value added tax, income, national insurance, or corporation tax but suggested further tax hikes elsewhere may be unavoidable.
She stressed fiscal discipline, saying her rules to balance day-to-day spending by 2029 remain “the bedrock of stability”, while rejecting a standalone wealth tax.
With borrowing costs elevated—30-year gilt yields recently hit 1998 highs—Reeves faces pressure to improve living standards while keeping markets onside.
Today she is expected to outline welfare-to-work measures, but Labour’s left continues to push for higher social spending, adding tension to her balancing act.
Meanwhile, Britain’s economy is forecast to expand by less than 1.5% in 2025, and inflation looks likely to hit 4% in September, double the BoE’s target.
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