Britain’s search for a credible Budget

The UK Autumn Budget looms on Wednesday 26 November amid policy U-turns and a backlash over rumoured manifesto-breaking tax hikes. With fiscal pain now unavoidable, bond and FX markets are signalling broader unease, mirroring the challenges facing many free-spending, heavily indebted Western economies.

17 November 2025

Not long now until the much-awaited UK Budget in late November, but the twists and turns keep coming. The market’s response to the latest government U-turn on raising income tax was curious given that it would not in itself have solved the fiscal hole Britain finds itself in any way. The ‘plan’ to raise income tax – as it was widely understood – was supposedly to be accompanied by a corresponding reduction in employee National Insurance rates which would have had the intended effect of leaving workers relatively unscathed (thus preserving Labour’s manifesto commitment) while hitting only ‘passive’ income streams. However, all this may have been a subtlety lost on the public who saw only the alarmist headlines of higher income tax. This, combined with a super-sensitive Prime Minister and Chancellor in the wake of the self-inflicted non-coup that emerged last week, meant that the plan was doomed and axing it was a matter of ‘when’ rather than ‘if’.

Fiscal doves should not start to celebrate though because it will only increase pressure on the myriad other fiscal levers the Chancellor has to hand. Expect, inter alia, onerous restrictions on pensions savings (even as the Pensions Bill designed to increase retirement savings makes its way through parliament!), Individual Savings Accounts (ISAs), possible Capital Gains Tax (CGT) changes, adjustments to council tax and an expatriation exit charge in case you had thoughts of leaving the country. Somehow though the gilt market remained unconvinced on Friday and through into Monday, while cable now languishes at USD 1.32 having reached USD 1.37* in the summer. The Chancellor will doubtless inflict sufficient misery later this month to fix the immediate problem, but the emerging challenge bond and currency markets are hinting at now may be one of more general economic credibility rather than immediate solvency. If there is any consolation, it is that Britain is not alone in all this. Many advanced economies are now heavily indebted and the bond markets are now starting to flash red for a clear strategy to deal with the problem.

Accidents waiting to happen?

From 31 Dec 2004 to 17 Nov 2025

Julian Howard is Chief Multi-Asset Investment Strategist at GAM Investments. This blog represents the views of GAM’s Multi-Asset team.