After the publication of UK’s Autumn Budget, the British Pound (GBP) was under immense pressure this week. UK Chancellor Rachel Reeves nails consumers with £40 billion tax increases, the largest fiscal tightening since 1993. Immediately following the announcements, the Pound lost value as markets estimated how much the economy would suffer.

Chancellor Reeves unveiled massive tax increases to support Britain’s public services Wednesday in her budget speech. She also relaxed the government’s fiscal rules, enabling this higher borrowing to go towards long-term investments in an attempt to boost economic growth. Although these measures could help in the longer term, financial markets did not initially take them well.

The bond market reaction was especially severe, as UK government bonds dropped sharply on Thursday. Yields on two-year gilts surged more than 20 basis points higher as a result of this sell-off, their highest levels since May. The fall in gilts came amid continued fears from investors about the likely effect of higher taxes and greater borrowing on the UK economy

However, the Pound rebounded a little heading into the weekend after these rocky reactions. The gilt markets, however, appeared to have calmed down by Friday morning, after the initial post-budget volatility (or lack of it) settled down. That stability implies that despite the budget being very bearish for the Pound, many traders careful of their position size, but for now at least buyers appeared to have stepped in due to some sort of shifting dynamic.

Going forward, the monetary policy trajectory has changed quite a bit. Before the budget, the market was pricing in close to five quarter-point rate cuts from the Bank of England over the next year. But those expectations have shifted, with traders now anticipating fewer than four cuts this year. On November 7 it is 80 per cent likely that we see a 25 basis point cut as we feel it is prudent to take a wait and see approach to fiscal loosening before fully easing monetary policy.

In the following hours, investors and policy makers will digest the Autumn Budget through the lens of its longer term implications for the UK’s economic fabric. As the UK moves through this difficult economic terrain, the act of diligence between care and investment that both support economic growth and stabilise the UK economy with products for all and for generations to come will be the core question.