The spotlight today is firmly on Britain’s Chancellor Rachel Reeves as she prepares to deliver her Spring Statement, outlining the Labour government’s fiscal and economic plans against a backdrop of mounting economic and political uncertainty.
With inflation proving stickier than expected, borrowing costs on the rise, and economic growth stagnating, the Chancellor is widely expected to unveil a fresh wave of spending cuts aimed at preserving the government’s self-imposed fiscal rules. At the core of her message is the commitment to ensure day-to-day government spending is fully covered by tax revenues and that public debt declines as a share of GDP by FY2029/30.
Spending Cuts Ahead as Fiscal Headroom Narrows
Higher interest rates and recent downward revisions in growth forecasts by the Office for Budget Responsibility (OBR) have significantly eroded the UK Treasury’s fiscal headroom. Analysts expect Reeves to announce around £10 billion in spending cuts, mainly concentrated in welfare expenditure and a reduction in public sector headcount. These cuts are expected to be backloaded beyond 2027, a move likely to face scrutiny amid calls for greater fiscal credibility.
The government has already floated £5 billion in welfare spending reductions and plans to cut Civil Service administrative costs by 15% by 2030. However, the timing and structure of these cuts may be critical to investor sentiment. Analysts warn that if the measures appear too delayed or lack enforcement mechanisms, market confidence could wane.
Markets Cautious Ahead of Budget Release
Sterling came under pressure ahead of the budget announcement, sliding 0.3% to $1.2901. According to ING analysts, the prospect of tighter fiscal policy—particularly if gilt issuance rises aggressively—combined with an underpriced path for Bank of England rate cuts, could weigh further on the pound.
The combination of fiscal austerity and potential monetary easing heightens the risk of renewed volatility in both gilts and the currency market.
Technical Outlook: GBP/USD Signals Downside Risk
From a technical perspective, GBP/USD now trades below the Ichimoku Cloud on both the 4-hour and hourly charts, a clear sign of short-term bearish momentum. With the pair breaking below the critical $1.2900 handle, downside pressure is building.
- Immediate support lies at $1.2800, a level that previously acted as resistance during the January consolidation range.
- A further break could expose $1.2750, which marks the lower bound of the broader uptrend channel from December 2024.
- RSI indicators across the intraday timeframes have turned lower, and the bearish crossover in the MACD supports the case for further downside.
Unless sterling can reclaim and hold above $1.2900 with strong conviction, the path of least resistance in the short term appears to be lower.
Conclusion:
With the UK caught between fiscal restraint and economic fragility, traders should monitor not only the rhetoric from Chancellor Reeves but also the technical signals, which suggest sterling could face further losses in the near term. As GBP/USD trades below key levels, price action around $1.2800–$1.2750 will be pivotal in determining whether this is a short-term correction or the beginning of a deeper retracement.
