Autumn Budget reaction

4 minute read

Autumn Budget 2025

The Autumn Budget (26 November 2025) gave Rachel Reeves more fiscal headroom than had been thought – thanks largely to the OBR’s forecasts and a carefully assembled set of back-loaded tax measures – while keeping markets onside. Gilts rallied, sterling firmed, and rate cut expectations barely budged.

However, the growth and productivity story remains stubbornly weak, and the UK’s tax burden is heading for record highs. Ian Jensen-Humphreys looks beneath the headline ‘win’ and considers what the Budget really means for investors.

What actually happened?

The OBR leak stole the show

In an unprecedented slip, the OBR published its Economic and Fiscal Outlook before the chancellor stood up – laying out the key tax/spending numbers and the new headroom figure in advance. Markets and MPs digested the Budget before it was delivered, with the OBR apologising for a ‘technical error’.

Headroom rose to c.£22bn

The OBR indicated fiscal headroom of around £22bn, up from the spring’s c.£10bn, enabled in part by growth being downgraded less than feared and by policy changes that raise revenue later in the forecast.

No headline income tax rate rise, but many smaller hikes

The chancellor extended the freeze on income tax and national insurance (NI) thresholds for a further three years (to 2030/31), alongside measures such as NI on salary sacrifice pension contributions above £2,000, a lower cash ISA limit of £12,000 (for under 65s), and a high-value property surcharge. The package lifts the UK tax burden towards c.38% of GDP by 2030–31 – an all-time high in OBR projections.

Growth and productivity still soft

The OBR raised near-term GDP for 2025 but trimmed medium-term growth, citing weaker productivity – an assumption with large fiscal consequences.

Market reaction

If you have read my previous blogs, you will know markets trade relative to expectations, not just outcomes. Here, consensus had braced for a messy, credibility sapping statement. Instead, Reeves delivered a technocratic consolidation: broadly as telegraphed, fiscally tighter over time, with no shock to gilt supply today and no breach of her rules. That relative surprise – ‘not as bad as feared’ – was enough for an orderly relief move in gilts and in sterling.

Gilts

Yields fell modestly (prices up), echoing relief that fiscal rules are intact and that headroom is more than £20bn. Analysts expect the risk premium in gilts to edge lower if credibility holds.

Sterling

The pound strengthened versus the US dollar and, to a lesser extent, the euro, consistent with a ‘less bad’ fiscal stance and the absence of near-term supply shocks.

Rates

Bank of England (BoE) rate cuts remain a 2026 story for most desks. The pricing for two to three cuts by late 2026 barely moved on the day, reflecting the Budget’s minor near term impact.

Equities

UK markets were steady to modestly higher during/after the statement - a classic ‘clarity and credibility’ relief pattern with no new near-term growth impulse.

But what about growth?

Here is the rub. The OBR’s productivity downgrade (and its history of trimming medium‑term output assumptions) is what forced back‑loaded tax rises in the first place. Medium‑term GDP growth is muted, and the UK’s structural productivity problem remains unresolved.

In policy terms, the Budget was heavy on revenue measures, but far lighter on supply‑side reforms (planning, skills, R&D diffusion, housing, and regulatory agility) – precisely from where higher potential growth would come. Think‑tank and academic commentary ahead of the Budget warned that productivity assumptions matter more than the headline deficit arithmetic; small downgrades compound into big borrowing changes.

Our verdict

Did Reeves ‘win’ the Budget? On market psychology, yes. She walked the tightrope – appeasing backbenchers with welfare decisions, avoiding ‘rate shock’ for the BoE, and reassuring gilt investors with rule‑consistent arithmetic and more headroom.
On fundamentals, little changed: a record‑high tax burden ahead, sluggish productivity, and few supply‑side levers to raise potential output.
Net result: a tactical win, and to steal a phrase from the bond market, ‘extend and pretend’.

Ian Jensen-Humphreys

Portfolio Manager

Ian is a portfolio manager of the Quilter Investors Cirilium and Creation Portfolios. Ian joined Quilter Investors in March 2020 from Seven Investment Management (7IM), where he was deputy chief investment officer. Ian also spent 15 years at Goldman Sachs in risk management and portfolio hedging strategies.

Ian is a CFA charterholder and has a degree in Physics from the University of Oxford.

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