URGENT UPDATE: The British Pound is surging today following a significantly improved fiscal forecast from the UK’s Office for Budget Responsibility (OBR). Reports indicate that the fiscal shortfall has been revised down to £20 billion, prompting Chancellor Rachel Reeves to abandon plans for an increase in income tax rates.
Just announced by Alex Wickham, political editor for Bloomberg UK, the better-than-expected forecast is attributed to stronger-than-anticipated tax receipts and wage performance. This development allows Reeves to not only address the £20 billion gap but also maintain a fiscal buffer estimated between £15 billion and £20 billion against her fiscal targets.
Traders are reacting swiftly, with data from LSEG showing a reduction in expectations for Bank of England (BoE) rate cuts, dropping from 64 basis points yesterday to 58 basis points today. This indicates growing confidence in the UK economy following Reeves’ announcement.
In addition to the positive fiscal outlook, sources close to the Chancellor have revealed that while major tax increases are still anticipated to fill remaining public finance gaps, there will not be an increase in income tax rates at this stage. The Chancellor had previously signaled readiness to break the Labour Party’s election promise not to raise income taxes if necessary, but today’s forecast changes the urgency of that approach.
The OBR also indicated a slight downgrade in productivity forecasts, but this has been partially mitigated by the improved fiscal situation. Reeves is expected to adjust income tax thresholds in her upcoming budget, alongside potential increases from salary sacrifice schemes.
As the UK government prepares for these fiscal adjustments, the implications for everyday consumers and businesses are significant. With improved fiscal health, there is potential for greater economic stability, which can foster growth and investment in the UK market.
Stay tuned for more updates on this rapidly developing situation, as the implications of the revised fiscal forecast continue to unfold. Share your thoughts on how this news could impact the British economy and your financial strategies in the coming weeks.
