BBH: UK Budget Unlikely to Shift Rate-Hike Expectations as Pound Stays Strong

According to Jin10, the pound traded around 1.3380 against the U.S. dollar in early European trading on Friday, holding its gains as markets absorbed the UK Autumn Budget and focused on the Bank of England’s upcoming policy decision. Brown Brothers Harriman analysts said the UK’s October 2026 budget would have a “neutral” impact on sterling and gilts, noting that the government had slightly increased fiscal tightening while planning a small increase in debt issuance. The cyclically adjusted primary balance, excluding interest payments and adjusted for the economic cycle, is expected to improve from a deficit of 0.3% of GDP in fiscal 2026/27 to a surplus of 0.5% in fiscal 2027/28. The fiscal tightening amounts to a drag equivalent to 0.8% of GDP, above the 0.6% forecast in March. BBH warned that the additional tightening may be too modest to significantly curb market expectations for nearly 125 basis points of cumulative Bank of England rate hikes over the next 12 months.