Pound Surges Ahead of Long-Awaited Budget. Forecast as of 27.11.2025 | LiteFinance
Fears about a new budget have made the pound an underdog on Forex. However, raising the average tax rate to a record-high 38.2% improved its outlook. Indeed, it was a savvy move by the Labour Party. Now, let’s discuss this topic and make a trading plan for the GBP/USD pair.
The article covers the following subjects:
Major Takeaways
- The UK is raising taxes for the second time in two years.
- The average tax rate has increased to 38.2%.
- The markets responded calmly.
- Long trades on the GBP/USD pair can be considered on a breakout of 1.326.
Weekly Fundamental Forecast for Pound Sterling
The winner is not the one with the most strength, but the one who can draw the right conclusions from previous defeats. Investors were seriously concerned that Rachel Reeves’ budget proposal would trigger the same market crash as Liz Truss’s supplementary budget three years ago. However, the Labour Party managed to sort things out and make a smart decision. As a result, the UK’s average tax rate rising to a record 38.2% has boosted the GBP/USD pair.
Life expectancy is increasing worldwide, and with it, healthcare and pension costs are rising. Across Europe, an aging population is leading to increased budget deficits. Rising defense and debt-servicing costs are also key factors. Taxes had to be raised, and the UK did so twice in 2024 and 2025. In the latter case, Rachel Reeves raised £26 billion.
UK Existing and New Taxpayers
Source: Bloomberg.
The Chancellor refused to include income tax, VAT, and social security contributions, which the Labour Party had promised not to raise. In fact, taxes on the wealthy, expensive real estate, and investments have risen. Income tax rates were frozen for three years. By the end of 2028, 5.2 million people in Britain will pay the baseline rate of 20%, 4.8 million will pay 40%, and 600,000 will pay 45%. The faster wages grow, the sooner the transition will take place. According to the Office for Budget Responsibility, this will raise an additional £13 billion by 2030–2031.
The markets reacted relatively calmly to Rachel Reeves’ draft budget, and if it weren’t for the leak from the OBR, everything would have gone quietly. Indeed, as after last year’s tax increases, there will be an outflow of capital belonging to the wealthy from the country. This is especially true given that Italy and Greece offer them favorable living conditions. Nevertheless, a Liz Truss-style disaster has been avoided. This suggests Labour’s ratings may be rising.
Ratings of Political Parties in UK
Source: Bloomberg.
In 2024, their election victory benefited the pound due to confidence in political stability. Currently, GBP/USD quotes are rising due to the OBR raising its GDP forecast for 2025 from 1% to 1.5%. The Bank of England may reconsider the need to lower the repo rate in December. However, the chances of this happening are 90%. However, it is uncertain whether the cycle of monetary expansion will continue in 2026, as wage growth is outpacing inflation. In such conditions, the economy might overheat.
Weekly GBPUSD Trading Plan
Selling the pound on rumors and buying it on the news was a good strategy. A breakout of 1.3095 allowed traders to open long positions on the GBP/USD pair. From now on, long positions can be increased, including in the event of a successful second attempt to break through the resistance level of 1.326.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
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