Sterling slips ahead of UK budget as fiscal headroom narrows to £15 billion

The pound weakened against the dollar and euro on Wednesday, October 28, as investors waited for the UK budget. Finance Minister John Healey was expected to present the plan in parliament shortly after 1230 GMT.

Sterling fell 0.1% to $1.329, a more than one-week low against the dollar. It also declined 0.1% against the euro to 83.7 pence. The euro had hit its lowest level against sterling since May 2025 on Tuesday.

Budget aims to raise revenue without unsettling bonds

The budget was set to outline how Prime Minister Andy Burnham's government plans to raise revenue to finance economic growth, including spending on defence and artificial intelligence, while addressing the high cost of living. It was also meant to show how the government would meet the country's fiscal needs without unsettling the bond market.

Banks, gambling companies and online marketplaces such as Amazon and Temu were expected to face higher taxes. Budget forecasters warned that the government's fiscal headroom had narrowed to around £15 billion.

Healey expected to announce cautious plan

Healey was expected to announce a cautious budget plan. The measures were set to focus on raising revenue for growth and cost-of-living support, with tax increases targeted at banks, gambling companies and online marketplaces.

Market view

Matthew Ryan, head of market strategy at Ebury, said in a note: “Spending increases look set to be modest, with relatively small new commitments paid for by reallocating money from elsewhere rather than through extra borrowing.”