The UK budget lifted Pound Sterling (GBP) modestly as fiscal pressures eased, but back-loaded tax measures and upcoming BoE rate cuts could keep the currency’s upside limited, ING's FX analyst Chris Turner notes.

EUR/GBP set to drift higher ahead of BoE

"Sterling rallied on the budget yesterday. The positives came in the form of higher fiscal headroom (less pressure on fiscal credibility) plus the fact that the UK government did not need to raise taxes as much as expected next year. Helping the latter point was the Office for Budget Responsibility’s reassessment of the current fiscal hole at a mere £6bn."

"Concerns over the credibility of back-loaded tax hikes may have to be left to another day. And we do not think the government’s spending plans, running into a 2029 election, look credible. Equally, we do not think sterling has to rally too far now, either. Our take is that this Budget does not have major implications for the BoE cycle, but at the margin, lower energy prices could give the BoE a little more confidence to cut."

"With sterling not particularly cheap on a trade-weighted basis, we still think three BoE cuts over the next seven months could send EUR/GBP a little higher. As such, we expect EUR/GBP to meet demand in the 0.8700/8750 area and work its way back to 0.8850 ahead of a BoE rate cut on 18 December."