The Macro Brief by HSBC Global Research The UK's budget tightrope
Nov 28, 2025
Liz Martins, Senior UK Economist at HSBC Global Research, and Nick Andrews, Senior FX Strategist, delve into the recent UK budget. Liz highlights how the budget avoided messy outcomes and provided relief to markets, while also addressing the implications of rising taxes linked to an aging population. Nick discusses the currency markets, focusing on sterling's reaction and how inflation expectations influence the Bank of England's decisions. They also touch on productivity forecasts and the potential impact of AI, making for a captivating discussion.
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Budget Avoided Market Shock
- Rachel Reeves delivered a budget that balanced market acceptance and Labour party approval, avoiding major market disruption.
- The package was cautiously received as it ticked boxes on fiscal credibility and disinflationary intent.
Headroom Doubled To Reduce Re-Tweaks
- The government raised its fiscal headroom to £22bn for the 2029–30 current budget target, up from £10bn.
- This larger margin reduces the chance of repeated policy adjustments if growth or borrowing worsens.
Aging Drives Inevitable Tax Pressure
- Demographic pressures and rising healthcare costs make higher taxes likely over time without big reforms.
- The UK faces similar fiscal strains to other developed countries, though it is not the most heavily taxed.