Hard Times Ahead for Britain

GBP/JPY

Key zone: 198.50- 200.00

Buy: 200.50 (on a confident breakout of the 200 level); target 201.50-202.00; StopLoss 199.80

Sell: 198.00 (on strong negative fundamentals) ; target 196.50; StopLoss 198.60

The United Kingdom faces a new wave of economic uncertainty.

On Tuesday, the British pound lost more than 100 points against the dollar after Prime Minister Keir Starmer confirmed that his cabinet is prepared to make “tough but fair” decisions on tax increases.

The government must close a £35 billion fiscal gap while maintaining both economic stability and voter confidence.

• The Prime Minister told the Labour parliamentary faction that the new budget will be based on “Labour values,” including the protection of public services and the National Health Service (NHS).
  The goal is to reduce national debt and contain the rising cost of living.
• The full package of fiscal measures will be presented on November 26, while Chancellor Rachel Reeves is currently reviewing dozens of tax-hike options.
• Lady Reeves made a rare “pre-budget address” — unusual in modern British politics — to prepare potential taxpayers for unpopular decisions necessary to restore the country’s finances.

Key points of the program:

• Control over public debt — tax increases are not ruled out.
• Reform of business taxation with a focus on supporting local companies.
• Possible use of downgraded productivity forecasts from the Office for Budget Responsibility (OBR), which could add £20 billion to fiscal pressure.
• Introduction of a 20% tax on the assets of citizens emigrating from the UK, expected to bring around £2 billion annually.
• Higher duties on premium housing and taxes on capital assets.

As a result, the new fiscal package has already been informally dubbed the “Budget of Fair Growth,” as its mission is to reduce inflation without resorting to shock measures.

The market reacted immediately: the pound sterling weakened sharply against major currencies.

Analysts warn that higher taxes may slow economic growth, reduce the country’s investment appeal, and weaken export competitiveness.

However, fresh October PMI services data came as a pleasant surprise — 52.3 points versus forecasts of 51.1 and 50.8 in the previous month — indicating a recovery in business activity.

This positive factor partly limited further declines in the pound.

The market expects the Bank of England (BOE) to keep the interest rate unchanged at 4.00%, with the probability of this scenario estimated at roughly 85%.

Inflation, though easing, remains high — 3.8% YoY in September, still well above the BOE’s 2% target.

Some market participants believe a rate cut — by 0.25% or even 0.5% — could be discussed, potentially triggering another wave of pressure on the pound.

Currently, swap markets price in about a 30% probability of a rate reduction to 3.75% at this meeting.

Meanwhile, in Tokyo, inflation in October consistently exceeded 2%, reinforcing expectations of a gradual policy normalization by the Bank of Japan (BOJ).

The minutes of the BOJ’s last meeting revealed disagreements among board members about the timing of the next rate hike.

The yield on 10-year UK Gilts (~4.4%) remains significantly higher than that of comparable Japanese JGBs (~1.66%), supporting interest in carry trades involving the yen.

However, the trend of narrowing spreads increases risks for GBP/JPY.

In October, the GBP/JPY pair hit a new high of 204.50, but now hovers near the psychological 200.00 level.

After the BOE meeting, key resistance and support zones are unlikely to change — the pair’s further direction will depend on yen dynamics and the market’s response to Starmer and Reeves’ fiscal policies. .

The British market is entering a period of financial reassessment and monetary pause.

The pound remains vulnerable to political decisions, and investors await the end of November to assess whether the “Budget of Fair Growth” will truly mark a step toward stabilization — or yet another blow to business activity.

So we act wisely and avoid unnecessary risks.

Profits to y’all!