The British pound fell in European trading on Friday against a basket of major currencies, resuming losses after a two-day rebound from a seven-month low against the US dollar. The decline came as investors grew increasingly concerned about the upcoming UK budget, expected to be announced soon.

UK Chancellor of the Exchequer Rachel Reeves signaled this week that broad-based tax increases are on the way to avoid a return to austerity, describing them as difficult choices aimed at protecting public spending and reducing Britains debt burden.

As expected, the Bank of England on Thursday left interest rates unchanged for a second consecutive meeting, amid a clear split among policymakers over the pace of monetary easing.

Price Overview

GBP/USD rate today: The pound fell 0.2% to $1.3116, down from the sessions opening level of $1.3139, after reaching an intraday high of $1.3142.

On Thursday, the pound gained about 0.7% against the dollar, marking its second straight daily advance as it continued to recover from a seven-month low of $1.3010 following the Bank of Englands policy decision.

UK Budget

According to The Times on Thursday, Chancellor Rachel Reeves told the UKs budget watchdog that higher personal taxes are among the key measures she is preparing to include in her upcoming budget.

Reeves had already paved the way on Tuesday for broad-based tax hikes to avoid a return to austerity, describing her second annual budget as one that involves difficult choices to safeguard public spending and bring down national debt.

Markets are now eagerly awaiting details on the widely anticipated tax increases when Reeves presents her budget on November 26.

Bank of England Decision

In line with expectations, the Bank of England voted on Thursday to keep interest rates unchanged at 4.00%, their lowest level since February 2023, marking a second consecutive hold.

The vote split 54, with five members supporting the hold and four favoring a 25-basis-point cut to 3.75%. This narrow division contrasted with market forecasts that had expected a 63 vote in favor of maintaining rates.

The Bank said inflation has likely peaked and is expected to decline notably in the October and November data.

Andrew Bailey

Although Governor Andrew Bailey supported holding rates steady, he was the only member among the majority who acknowledged that inflationary risks had begun to ease. He also emphasized the need for further evidence before taking any step toward rate cuts.

Analysis and Commentary

George Brown, senior economist at Schroders, said the Bank of Englands decision to keep rates unchanged was the right call, noting that inflation remains roughly double the 2% target.

Brown added that the central bank will be in a stronger position after the budget uncertainty clears, supported by additional labor and inflation data, to decide whether further monetary easing in December is warranted.