Sterling inches lower ahead of highly anticipated UK budget

Summary Companies Healey expected to detail budget after 1230 GMT in parliament Budget forecasters say fiscal headroom shrank to about £15 billion Banks, gambling firms and online marketplaces expected to face higher taxes Oct 28 (Reuters) - Sterling dipped against the euro and ​the dollar on Wednesday ahead of a highly anticipated budget announcement that will detail ‌how Prime Minister Andy Burnham's government plans to address the country's fiscal needs without rattling the bond market.

The pound eased 0.1% to a more than one-week low of $1.329, while it was also off 0.1% against the euro , at 83.7 pence. The ​single European currency hit its lowest since May 2025 against sterling on Tuesday. Sign up here. UK finance minister ​John Healey is expected to announce a cautious budget plan in parliament just after 1230 ⁠GMT that will detail how he plans to generate revenue to finance growth, including defence and artificial ​intelligence spending while also addressing the high costs of living pressuring the public.

Banks, gambling firms and online marketplaces such ​as Amazon (AMZN.O) , opens new tab and Temu (PDD.O) , opens new tab are expected to be hit with higher taxes at a time when budget forecasters have said fiscal headroom has shrunk to about £15 billion. "Spending increases look set to be modest, with relatively small new commitments paid for ​by reallocating money from elsewhere rather than through extra borrowing," Matthew Ryan, head of market strategy at ​Ebury, said in a note.

A portrait of Britain's King Charles is displayed on a British five pound note in this illustration taken in Manchester, Britain, November 25, 2025. REUTERS/Phil Noble Purchase Licensing Rights , opens new tab Any indication of a heavy reliance on debt could spark a selloff in the pound and ‌gilts, at ⁠a time when investor appetite for sovereign issuance in developed markets has been declining because of concerns about soaring public debt.

A selloff in French bonds this month was a recent reflection of this sentiment. Healey has said he would stick to the government's fiscal targets. The yield on 30-year gilts was up 2 basis ​points, having eased slightly ​from the highest level ⁠since early 1998 hit earlier this month. “For sterling and gilts, we see the bar for a positive surprise as high. With a market-friendly budget priced in, the ​path of least resistance is lower for the pound and bonds," Ryan ​said.

Despite losses in ⁠recent sessions, sterling is marginally higher this month, buoyed by expectations that the Bank of England will hike interest rates by at least 25 basis points next month, LSEG-compiled data showed. Later in the day, global markets will ⁠be ​focused on the US Federal Reserve's monetary policy decision, with a ​Reuters poll of economists anticipating no change. However, traders see the central bank hiking interest rates by another 25 basis points in December, the ​CME Group's FedWatch Tool showed.

Reporting by Johann M Cherian in Bengaluru; Editing by Amanda Cooper and Kirsten Donovan Our Standards: The Thomson Reuters Trust Principles. , opens new tab Suggested Topics: United Kingdom X Facebook Linkedin Email Link Purchase Licensing Rights