Fitch has set out its assessment of the UK Budget delivered on Wednesday, October 28, saying it expects broad continuity in government policy but flags a sizeable task in carrying it out. The ratings agency expects significant slippage against the government’s spending plans and sees fiscal consolidation turning much harder from 2027 onward. It also sees somewhat greater policy risk as the country approaches the next general election.
Budget details and fiscal buffer
The Budget aimed to deliver targeted relief on living costs while keeping intact the government’s plans to bring down borrowing. From April 2027, tax rates on savings and property income are set to rise to 24 percent, 44 percent and 49 percent, while the National Living Wage climbs 3.9 percent to £13.21 an hour. An extra £1.5 billion was earmarked for social and affordable housing.
The Office for Budget Responsibility concluded that the measures make little difference to its growth and inflation projections. It nonetheless cut its 2027 growth forecast to 1.0 percent from 1.6 percent and lifted its inflation forecast sharply, to 3.4 percent from 2.0 percent. On these forecasts the government still meets its fiscal rules, but the buffer against the day-to-day budget target narrows to just £15 billion in 2029/30. Projected borrowing over 2026/27 to 2030/31 is on average £13 billion a year higher than in the previous forecast.
Infrastructure plans and sterling reaction
Fitch does not expect the government to meaningfully lift its infrastructure spending plans. Measures tied to mayoral income tax powers from 2028 are expected to be broadly neutral for the public finances at the outset.
GBPUSD bottomed on Wednesday near 1.32729 before rallying, but sellers capped the advance at the 200-day moving average around 1.34277. The pair reached a session high of 1.3433 before pulling back.
Source: Fitch
