Headline: UK Seen Backing Away from Income Tax Hike, Sterling Slips as Markets Reprice Risk
London is reportedly weighing a reversal on planned income tax increases ahead of the Autumn Budget, unsettling currency and bond markets overnight. The potential policy pivot comes amid heightened political uncertainty and appears aimed at shoring up support for the Labour government.
If confirmed, dropping the income tax hike would mark a sharp U-turn from earlier commitments by Prime Minister Keir Starmer and Chancellor Rachel Reeves. While politically expedient, the shift could worsen the UK’s already stretched fiscal position and raise questions about fiscal credibility. Lawmakers have been notably quiet in recent weeks, suggesting the move has been under consideration for some time.
Financial markets reacted quickly. Sterling softened as borrowing worries resurfaced, with GBP/USD down 0.3% to 1.3149, while EUR/GBP climbed 0.4% to 0.8855—its highest level since April 2023. UK gilts are expected to come under pressure at the European open, with bond yields likely to push higher, adding further headwinds for the pound into the weekend. With the Autumn Budget due on 26 November, policymakers have a narrow window to outline a credible fiscal strategy that balances tax policy, borrowing needs, and market confidence.
Key Points: – UK may abandon planned income tax increases ahead of the Autumn Budget – Move would be a notable reversal from prior Labour pledges by Starmer and Reeves – Market reaction: GBP/USD down to 1.3149; EUR/GBP up to 0.8855, the highest since April 2023 – UK gilts likely to sell off, with bond yields poised to rise – Sterling could face extended pressure into the weekend – Autumn Budget announcement scheduled for 26 November
