Budget Woes and Labour Turmoil Weigh on Pound. Forecast as of 13.11.2025
Pressure on the GBPUSD pair extends beyond fears of tax hikes, spending cuts, and the Bank of England’s monetary policy easing. Internal rifts in the Labour Party are also weighing on the British pound. Let’s discuss these topics and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Bank of England appears more likely to cut rates in December.
- Support for the Labour Party is declining.
- Rumors of a leadership change caused the GBPUSD pair to plummet.
- Consider selling the GBPCHF pair with targets at 1.037 and 1.032.
Weekly Fundamental Forecast for Pound Sterling
Markets have swung from one extreme to the other, leaving currencies under pressure. In the first half of the year, the US dollar fell 10%, while at the end of 2025, the pound became the main outsider. Chancellor Rachel Reeves now faces a budget gap of at least £30 billion, and potentially far more, as she aims to cut last year’s 5.7% GDP deficit. However, the remedy could prove worse than the disease.
Market participants are questioning whether Rachel Reeves can meet investors’ expectations of higher bond returns. Tax hikes risk slowing growth while increasing the need for government borrowing. As gilt yields decline, investors are looking for clear signals that fiscal policy remains credible. If Reeves fails to reassure investors, markets could relive the turmoil that followed Liz Truss’s budget three years ago, when gilt yields surged and the British pound plunged to record lows as investors dumped British assets.
After Rachel Reeves presented the draft budget, bond yields remained stable, suggesting investors are now focusing on the Bank of England rather than the government when assessing the reasons for the UK’s slowing GDP growth. At its November meeting, the Bank deviated from its usual schedule of cutting the repo rate once every three months. It also indicated that inflation has probably peaked and that more rate cuts could follow soon.
UK Inflation Trends
Source: Bloomberg.
After unemployment rose to 5%, the highest level since February 2021, and wage growth slowed, the derivatives market increased the odds of the repo rate cut in December from 57% to 74%. This is higher than the probability of a similar move in the US federal funds rate, which could weigh on the GBPUSD pair.
Despite the specifics of Rachel Reeves’s budget proposal and the initial bond market response, the pound is expected to stay under pressure. Moreover, the challenges extend beyond the currency. The Labour Party’s decision to backtrack on its tax pledge has weakened its support, while Nigel Farage’s Reform UK is gaining traction in the polls. With local elections approaching in May, any budget misstep could be detrimental for Prime Minister Keir Starmer.
UK Party Support Trends
Source: Bloomberg.
Tensions are rising within the Labour Party. Several members have urged the government to keep its election promises. Meanwhile, rumors of a possible leadership change have added to political uncertainty and contributed to the decline in the GBPUSD pair.
Weekly EURGBP and GBPCHF Trading Plan
Political uncertainty and fiscal risks are putting pressure on the British pound, similar to how expectations of a Fed rate cut are weighing on the US dollar. In this environment, the pound is likely to weaken against other major currencies. The strategy to buy the EURGBP pair with targets at 0.89 and 0.9 remains valid. Besides, consider selling the GBPCHF pair, targeting 1.037 and 1.032.
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 GBPCHF in real time mode
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