The British Budget is only half convincing: markets are cautious and doubtful about growth
26 NOV, 2025
The new UK Budget has sparked a cautious reaction in the markets, with gilts essentially stable; at the same time, investors and managers are analyzing the sustainability of the announced measures.
Despite the Chancellor having expanded the fiscal margin and maintained an optimistic tone, many experts question the solidity of the growth assumptions, the effectiveness of the new fiscal measures and the impact on families and savers.
What the UK announced — and what it means for markets and savers
Neil Mehta portfolio manager at RBC BlueBay Asset Management , argues that the Budget’s foundations are weak despite the Chancellor’s attempt to reassure markets. He notes that government messaging does not match the underlying numbers: “The Chancellor attempted to get the market onside by increasing headroom to £22bn and talk upbeat on growth. But the stark reality is in the details which remain unconvincing.”
Mehta highlights that many revenue-raising measures are delayed or flawed: “Much of the revenue raising measures are back-loaded (income tax thresholds), underestimate the behavioural impact (salary sacrifice on pensions), or are badly designed (high property tax).”
He also stresses the lack of action on rising structural costs: “Little has been done in curtailing spiralling costs on welfare, pensions and incorporating rising defence spending.”
Above all, Mehta warns that fiscal headroom could easily evaporate if forecasts disappoint, citing the OBR’s own sensitivity analysis: “If nominal GDP undershoots by 0.3pp each year over the forecast period, the headroom is wiped out… If Gilt yields rise 1pp each year over the forecast period, the headroom is nearly wiped out.”
This vulnerability, he says, raises the risk of further tax increases: “The risk the government comes back in a year asking for yet more tax rises remains high
Aqib Merchant, Fiduciary Manager at Russell Investments, underscores that markets reacted calmly because the Budget was widely anticipated: “The measures announced were largely expected and the bigger market driver was the OBR’s weaker growth outlook.”
He adds that softer growth projections might give the Bank of England slightly more flexibility: “Softer growth expectations may even give the Bank of England a little more room to bring rates down sooner, provided inflation remains contained.” On gilt performance, Merchant notes: “Ten- and twenty-year yields are now slightly lower as markets digest the full package.”
Turning to savers, he stresses that some reforms will have significant behavioural effects. He argues that the Cash ISA change is minor: “The cut to the Cash ISA allowance is not transformational.” However, the cap on salary sacrifice is more substantial: “Under the new rules, only the first £2,000 of sacrificed salary will secure the National Insurance advantages… Anything above that will now face full NI charges.”
Merchant warns that this will weaken a key tool for pension building: “This affects one of the simplest and most effective ways many workers build their pension pots.”
He also emphasises the long-term drag of frozen tax thresholds: “The continued freezing of tax thresholds till 2031… reduces disposable income, chips away at the incentive to save and brings more retirement income into taxation.”
In his view, the Budget leaves savers more vulnerable: “This Budget may not have rattled gilts, but it will test the resilience of the UK’s savings culture.
Gordon Shannon, Portfolio Manager at TwentyFour Asset Management, sees the Budget as barely meeting the bar for market acceptance: “Credible was probably always too high a bar for a budget built on backloaded measures, but today’s gilt reaction so far suggests the Chancellor’s plans have been accepted as at least plausible.”
He notes that several factors helped calm markets: “Headroom has been rebuilt, the UK’s disinflationary trend leaned into with the lowering of energy bills, and the absence of major surprises on borrowing or issuance has helped soothe market nerves.”
According to Shannon, the Budget paves the way for imminent monetary easing: “The way is clear for the Bank of England to deliver a December base rate cut while reinforcing expectations of earlier and deeper cuts in 2026.”
Yet he also warns of reduced growth potential: “The budget’s implied drag on medium-term growth will have also added downward pressure to gilt yields as investors priced a softer trajectory for demand and profits.”
