The British Pound (GBP) is finding support from the UK's new budget under Prime Minister Andy Burnham, as markets appreciate the calmer fiscal messaging. Commerzbank’s Michael Pfister notes that while significant changes are unlikely until a potential re-election, the budget's presentation has proceeded smoothly, easing market concerns.
Recent labour market data has strengthened expectations of an imminent Bank of England (BoE) rate hike, which is already largely priced in. The unemployment rate fell sharply from 4.9% to 4.7% in August, and job creation in September exceeded expectations, with 13,000 jobs added instead of the anticipated loss of 8,000. Combined with rising inflation and strong growth figures this year, the BoE is likely to raise interest rates next week, with markets expecting three more hikes by mid-2027.
The Pound has also benefited from the relative stability of UK government bonds, which have been trading more like German bonds than French ones. This shift suggests that market participants are giving the new UK government the benefit of the doubt, despite concerns about a European sovereign debt crisis. Historically, UK bonds have suffered heavy losses, but this recent resilience has provided additional support to the Pound.