Pound Plummets As Tax Hikes Loom. Forecast as of 06.11.2025
The UK’s budget woes are forcing the Bank of England to ease monetary policy sooner than expected, sending the GBP/USD pair to its lowest level since April. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Bank of England may deliver a surprise.
- The BoE’s verdict will depend on its governor.
- The Labour Party is preparing to raise taxes.
- Long trades on the EURGBP pair can be considered with the targets of 0.89 and 0.9.
Weekly Fundamental Forecast for Pound Sterling
The hallmark of 2025 is fiscal dominance. In the first half of the year, the US dollar tumbled amid pressure from Donald Trump on the Fed to lower the federal funds rate. In October, clouds were cast over the Japanese yen. The new Prime Minister, Sanae Takaichi, is a supporter of large-scale stimulus measures, both fiscal and monetary. Investors believed that she would persuade the Bank of Japan not to tighten monetary policy. In November, it was the pound’s turn.
The National Institute of Economic and Social Research said that Rachel Reeves would have to close a £50 billion hole in the budget. Moreover, the Treasury must generate primary surpluses to stop the increase in public debt. The higher the rates, the higher the cost of servicing it. Notably, the Labour government, which is losing voters’ support, would like the Bank of England to resume its cycle of monetary expansion as soon as possible.
BoE Policy Rate
Source: Bloomberg.
Goldman Sachs, Barclays, and Nomura are all urging the BoE to do this on November 6. However, only 8 out of 42 Bloomberg experts think Andrew Bailey will decide to keep cutting the repo rate every other meeting. Most predict the pause in the cycle will persist.
The MPC is divided. In August, it even had to hold a revote. The most prominent hawk, Chief Economist Huw Pill, is concerned about the highest inflation in the G7 countries. In contrast, Alan Taylor and other doves are concerned about the cooling labor market and economy. Andrew Bailey is the main swing vote, and according to TD Securities, the Bank of England’s verdict will depend on him.
The futures market gives a 30% chance of a cut in the repo rate to 3.75% in November and a 60% chance of this happening in December. The GBP/USD pair has fallen to its lowest level since April on fears of a surprise from the BoE. However, even if there is no such surprise, the central bank’s dovish rhetoric and signals of a resumption of the monetary expansion cycle at the end of the year will be a death sentence for the pound.
Market Expectations for BoE Rate Trajectory
Source: Bloomberg.
Until the end of November, the pound sterling will likely remain under pressure due to fears of tax hikes and government spending cuts by the Labour Party. During the election, they promised not to do this, but Rachel Reeves is considering several options to patch the holes in the budget.
Weekly EURGBP Trading Plan
Thus, the pound is definitely weak. However, is it worth selling the GBP/USD pair or is it better to consider buying the EUR/GBP pair? The second option seems more reliable. The markets will soon focus back on the Fed lowering rates, which will weaken the US dollar. The euro, on the other hand, will gain traction as the eurozone economy improves. One may consider buying the EURGBP pair with targets of 0.89 and 0.9.
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 EURGBP in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
