Tax Hikes Weigh on U.K Economy 

On Thursday, data from the Bank of England showed that British employers’ expectations for wage growth continued to soften. In a separate report, activity in Britain’s construction sector rose in November, but neither report had much impact on the pound. However, the pound gained 0.45% against the U.S. dollar, closing at 1.2758. 

(GBPUSD Daily Price Chart, Source: Trading View) 

Meanwhile, the re-election of Donald Trump has lately put the market spotlight on currencies of economies that could be vulnerable to tariffs, namely the euro and the Chinese yuan. The British pound, however, has been somewhat sheltered from the crisis because the UK’s economy largely escaped Trump’s trade scrutiny. A service-based economy which is less prone to tariffs, together with a modest surplus in goods balance with the US earlier this year, has helped protect the pound against volatility. 

The Bank of England also highlighted that more than half of responding firms intend to increase prices and cut jobs due to the government’s budget. On the same day, UK Prime Minister Starmer repeated his government’s commitment to ambitious economic growth goals. 

The British Chambers of Commerce said on Wednesday that 2025 may prove a testing year because of increasing employment costs and possible export tariffs imposed by the new Trump presidency. However, the BCC is more optimistic than the CBI; it revised its 2025 growth forecast up from 1.0% to 1.3%. The OECD also was upbeat, as it increased its projection for growth in 2025 in the UK to 1.7% from 1.2%. 

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