08:23 AM EST, 11/27/2025 (MT Newswires) -- Sterling (GBP) staged a relief rebound on Wednesday after the United Kingdom government released details of its own budget, said MUFG.

There was initial relief among market participants that the Fall Statement didn't trigger a sell-off in the gilt market, wrote the bank in a note to clients. The scaling back of short sterling positions built up ahead of the Fall Statement has helped to lift cable to a high overnight of 1.3269, while EUR/GBP has dropped back to 0.8750.

While the initial relief rally for sterling is understandable in light of positioning, MUFG isn't convinced that the bullish momentum will last long.

The lack of any material negative policy surprises in the budget doesn't provide justification for a sustained reversal higher for sterling, stated the bank. MUFG expects the market focus to switch back soon to the prospect of the Bank of England cutting rates again in December, weighing on sterling performance heading into year-end.

Wednesday's budget didn't change MUFG's forecast for the BoE to cut rates in December. At the margin, the bank argues it is supportive, given the government's policies will help to lower inflation next year and represent additional fiscal tightening.

Admittedly, the tax hike measures were back-loaded, so will have less impact on dampening growth in the coming years. MUFG sees continued loosening in the U.K. labor market and slowing wage growth to create more room for the BoE to lower rates to 3.25% by next summer.

The budget has been criticized for putting off making difficult decisions on the need to cut government spending, pushing back tax hike measures until closer to/after the next election, casting doubt on whether they will be implemented as planned, and lacking clear policies to boost growth, added the bank.

It's viewed as more of a political exercise to appease Labour members of parliament and reduce pressure on the leadership of the party, according to MUFG. The initial favorable market reaction also further helps to reduce the risk of an immediate leadership challenge.