Key events
UK at risk of ‘sudden confidence crisis’ if markets lose faith in budget
UK government borrowing costs have inched down today, as the bond markets continue to welcome the budget.
The yield (or interest rate) on 10-year gilts has dipped by 1.5 basis points to 4.44%, while 30-year gilt yields are down 3.5bps.
Those are small moves, but they add to a recovery on Wednesday when traders cheered the news that the government had doubled its fiscal headroom (to have a balanced current budget in 2029-30) to nearly £22bn.
However, fears are growing that this plan may not be credible, as it relies on tax rises and spending cuts in the run-up to the next election, and afterwards.
City consultancy Oxford Economics fear that markets will gradually lose faith in the budget. They’re warning that the risk of a sudden confidence crisis remains live, for several reasons.
In a new research note, they say:
The long-awaited UK Budget featured a small near-term loosening of fiscal policy and a larger longer-term tightening. The initial market reaction was positive, but we think markets will gradually lose faith, and the risk of a sudden confidence crisis remains live.
The first reason is that the tightening is “backloaded”.
Oxford Economic’s chief UK economist Andrew Goodwin explains:
This isn’t just a problem in terms of risking consolidation fatigue. The new plans imply a £17bn (0.5% of GDP) tightening in fiscal year 2029-2030, a year when the next general election is due to take place (Chart 2). By then the target year for the fiscal rules will be moving out again, and we think it very unlikely this tightening will be fully implemented.
Second, Goodwin says the Chancellor made no attempt to restrain spending, apart from the inclusion of some unspecified “efficiency savings” in the last two years of the forecast.
History suggests that revenue-based consolidations have a higher risk of failure. The Chancellor’s decision also risks adding to the perception that the government lacks the internal discipline to cut spending.
Third, apart from the extension of the threshold freeze, the tax measures encompassed a wide variety of large increases to smaller revenue streams.
“Such changes often trigger behavioural change, so revenue projections are more speculative. And as the experience of the October 2024 Budget demonstrates, they tend to result in specific groups being hit particularly hard, which can sometimes make the measures politically unsustainable. “
Finally, Goodwin adds there were no major measures to boost growth.
The OBR revised down its growth forecasts, which were previously more optimistic than any independent forecaster, but they still look too high in our view. Its new projection is in line with the strongest forecast of the consensus. But with this week’s new population data reporting much lower net inward migration than is assumed in the OBR’s forecast, there’s already questions over whether its projections will prove achievable.
The UK Treasury were told in mid-September that the deficit to meet the fiscal rules was smaller than feared.
Richard Hughes’s letter to the Treasury Committee (see previous post) shows that the OBR told the Treasury on 17 September that it had raised its forecast for wage growth and inflation, which lead to higher tax receipts.
He writes;
Our Round 1 forecast was also a full forecast and therefore also included increases in real wages and inflation which offset the impact of the productivity downgrade on receipts. But other changes in the outlook for spending meant that pre-measures borrowing and the current deficit were higher than in our March forecast.
As Steven Swinford of The Times puts it:
It makes the Budget build up – and the narrative that big tax rises were coming because of a deterioration in the public finances – look frankly surreal in hindsight.
BREAKING
The OBR says it informed Rachel Reeves as far back as ***September 17*** that the downgrade in productivity forecasts was offset by ‘increases in real wages and inflation’. The deficit was in fact just £2.5billion
By October 31 that deficit had turned into net positive… pic.twitter.com/LmTvwVXISI
— Steven Swinford (@Steven_Swinford) November 28, 2025
Treasury Committee publishes OBR letter confirming headroom forecast timings
Just in: Parliament’s Treasury Committee has now published the letter from Office for Budget Responsibility chair Richard Hughes, confirming that the fiscal watchdog told the government at the end of October that their budget headroom had not been totally eroded.
The letter, from Hughes, outlines the process of forecast rounds which took place between OBR and the Treasury in the run-up to the budget, as it updated its forecasts and analysed various fiscal proposals.
Significantly, the letter confirms that the government was initially missing its fiscal rule (to have a balanced current budget in 2029-3o), but was back on track in the Round 3 fiscal forecast, the final pre-measures forecast, which was submitted to the Chancellor on Friday 31 October.
Hughes explains:
The only changes to the post-measures forecast reflected the impact of the policies submitted by the Treasury in the two subsequent forecast rounds:
Round 4, which reflected the impact of the Government’s initial policy package, and Round 5, which reflected the impact of the final policy package.
After the 5th round, the headroom was up to almost £22bn.
The 31 October data is significant, as this is several days before Rachel Reeves gave an early morning press conference which appeared to hint at a rise in income tax…
… and two weeks before news broke that this plan was being dropped! (a u-turn which sources attributed to improved forecasts).
Hughes also tells the Treasury committee that the OBR took its data for assessing interest rates in the financial markets was the 10 working days to 21 October, and it did not revise them afterwards.
That indicates that the drop in bond yields in early November, when the markets anticipated a rise in income tax, did not flatter the OBR’s forecasts….
Financial markets hit by data centre cooling problem
The financial markets today have been hit by disruption caused a data centre fault.
Trading of futures and options on the Chicago Mercantile Exchange has been halted since early this morning, disrupting markets across equities, foreign exchange, bonds and commodities.
The CME — the largest exchange operator in the world by market value — has blamed a cooling problem, saying:
“Due to a cooling issue at CyrusOne data centers, our markets are currently halted. Support is working to resolve the issue in the near term and will advise clients of Pre-Open details as soon as they are available.”
This is making life difficult for traders, who rely on CME’s futures markets to price contracts.
“It’s a bit like flying dark,” Thomas Helaine, head of equity sales at TP ICAP Europe in Paris, told Bloombeg, adding:
“When you’re trading cash equity like us, US futures give you an indication of where the market is going before the open. I can only imagine how complicated it must be for derivatives desks.”
CMC Markets’ head of Asia and Middle East, Christopher Forbes, took a blunter view to Reuters, saying:
“It’s just a pain in the arse, to be honest.”
The outage could create more market volatility, warns Kathleen Brooks, research director at XTB:
Trading could be more volatile than usual today, as US markets open for half day and liquidity is likely to be thin. Added to this, a disruption on the CME trading exchange, could also affect trading across FX, stocks, commodities and some bonds.
The problem is linked to a cooling issue at one of its data centers. This closure ultimately means that liquidity will be even thinner than usual on the Friday of Thanksgiving. If there is any sensitive market news flow or events, then moves could be exacerbated by liquidity issues, and there could be more volatility as a result.
Budget fallout: Focus on timings of OBR forecasts, and income tax u-turn
Heather Stewart
One of the threads still to pull from this week’s budget relates to the furious briefing that went on in the run-up to Wednesday.
In particular, after the Financial Times got the scoop on 13 November that Rachel Reeves and Keir Starmer had dropped the idea of raising income tax for the first time since 1975, the Treasury claimed in a flurry of briefings to journalists that the change of heart was the result of better-than-expected forecasts from the Office for Budget Responsibility (OBR).
Those forecasts were, indeed, better than expected – stronger inflation and higher wage expectations meant Reeves was only £6bn deeper in the red by the end of the forecasts, not the £20bn widely reported.
But the OBR seems at pains to make clear the Treasury knew that well before 13 November – and indeed before Reeves made the “scene setter” early morning speech at which she refused to rule out raising income tax.
In the foreword to Wednesday’s Economic and Fiscal Outlook, the OBR said, “given the unusual volume of speculation on the subject,” it had “taken the unusual step” of writing to the chair of the Treasury select committee, Labour MP Meg Hillier, to “set out the facts concerning the evolution of our forecast”.
In the document itself, the OBR made clear that its final “pre-measures” forecast was sent to Reeves on 31 October, and “no further adjustments were made to our economy or fiscal forecasts after this”.
What did change between 31 October and 13 November, of course, was an outbreak of internal Labour warfare involving briefings against Wes Streeting, that made Starmer look highly vulnerable.
Hillier wrote to the OBR’s chair Richard Hughes last night, pointing out that she had not yet received his letter. Perhaps the OBR has distracted by Wednesday’s inadvertent early release of the forecasts.
But with Hughes set to appear before Hillier’s committee on Tuesday, we should expect this issue of what the Treasury knew about the forecasts and when, to run and run….
Moody’s warns of ‘high execution risks’ from UK budget
Credit rating agency Moody’s has warned that the UK government faces high “execution risks” when trying to implement this week’s budget.
Moody’s has welcomed the government’s willingness to bring public finances back in line with its targets, but warns that slower growth or higher interest rates could worsen the debt burden.
It also question whether the ‘ambitious tax assumptions’, and tough spending forecasts, are achievable, saying:
In recent years, government expenditure has consistently exceeded initial forecasts, resulting in higher deficits and debt. This is partly because of unforeseen shocks such as the covid pandemic in 2020 and the energy price increase in 2022, but also because of unrealistically tight spending assumptions in the outer years of the fiscal forecasts.
The government legislated the departmental spending envelopes up to 2028-29 in the June Spending Review, giving some confidence that the risk of significant deviations will be more limited during these years. But the government now assumes that it can freeze departmental spending in real terms in 2029-30, something which will probably be difficult to implement in an election year.
The trick to avoiding a Black Friday scam could be the ability to discern content created by artificial intelligence software from the real thing.
Payments firm Visa commissioned a poll this summer, which found that people who mistake AI-generated content for real are much more likely to be tricked by scammers than those who don’t.
They found:
Why Bank of England seems very likely to cut rates in December
Growing confidence that the Bank of England will cut interest rates next month could encourage some UK consumers to spend today.
The money markets now indicate there is a 94.2% chance that the Bank cuts base rate to 3.75% in December, down from 4%.
That’s up from 92% shortly after the budget, and around 85% before Rachel Reeves’s statement.
Shaan Raithatha, senior economist at Vanguard Europe, predicts cuts next year too
“The Budget delivered a smaller‑than‑expected fiscal tightening—around £18bn, or roughly 0.5% of GDP—and expanded fiscal headroom to about £22bn. That combination points to slightly stronger growth next year and a softer inflation profile, helped by measures that lower household energy bills and the continued fuel‑duty freeze.
“Taken together, the Budget is broadly neutral for monetary policy, but at the margin it increases the likelihood that the Bank of England will cut in December—taking Bank Rate from 4.00% to 3.75%—and guide towards a landing near 3.25% by mid‑2026
“Improved buffers should also support fiscal credibility, which is constructive for gilt markets. As ever, we advise investors to stay the course.”
Accountancy firm PwC has forecast that Black Friday spending will rise slightly this year.
They predicted:
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Black Friday spending in the UK is set to reach £6.4bn, 1.5% higher than last year
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Interest in Black Friday falls to 46% from 53% of shoppers last year, but those participating will spend £262 per head, 13% more than in 2024
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Men are set to increase their spending by 17% and will spend 43% more than women
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Four out of every five pounds will be spent online, either for home delivery or click & collect, with younger shoppers most likely to physically spend on the high street
My colleagues at The Filter have helpfully rounded up the best offers in the UK today, recommending good on products which they’ve tested or have been recommended by product experts.
Australia’s consumer regulator has warned that artificial intelligence is making it even harder to identify deceptive retailers, as so-called “ghost store” operators take advantage of Christmas and Black Friday to lure shoppers to their websites….
Researchers at cybersecurity firm NordVPN have discovered a sharp rise in fraudulent websites aimed at Black Friday shoppers.
Their data shows a 232% rise in the number of fake Amazon stores appearing on the internet, and another 525% rise in the number of fraudulent eBay sites.
NordVPN says:
Many of these sites are almost indistinguishable from the real thing – complete with copied branding, AI-generated product listings and convincing checkout pages designed solely to harvest personal and payment information.
Introduction: It’s Black Friday, so be careful out there
Good morning, and welcome to our rolling coverag of business, the financial markets and the world economy.
Consumers are being urged to stay on their guard today as retailers launch an assault of Black Friday special offers to lure shoppers to the checkout.
UK shops have warmly embraced America’s traditional post-Thanksgiving spending splurge, promising an array of bargains to the public.
But people need to stay sharp, for two reasons. Firstly the risk of fraud – the rise of AI technology is making it harder to distinguish real websites from fake ones. And second, the risk of an unscrupulous retailer offering a misleading special offer.
On the fraud risk, experts are warning the public to avoid unrealistic prices or requests for bank transfers. Earlier this month, the UK’s National Cyber Security Centre (NCSC) warned people to be on their guard in the run up to the day, and to stop the minute a purchase appears suspicious.
Jonathon Ellison, the director for national resilience at the NCSC, explained:
“This is … a time when cyber criminals seek to exploit our increased spending, using trusted brands, popular products, and current events to deceive people into clicking malicious links or sharing personal and financial information.”
Black Friday appears to be an increasingly online operation – unlike a decade ago, when early morning fights broke out between bargain-hunting shoppers, stores were forced to close, and the police stepped in to calm rucks over cheap electrical goods.
But whether you’re online or on the high street, be suspicious about the cut-price offerings.
A survey by Which? has found that eight in 10 products advertised as Black Friday deals are the same price or cheaper at the other times of the year
Which? tracked 175 items from eight major retailers in the year to May and found 83% were cheaper or equal in price at least once outside the four-week Black Friday period.
Reena Sewraz, Which? retail editor, said:
“Our research exposes the harsh truth: for the majority of shoppers, Black Friday is a false economy. Retailers are relying on hype and urgency to push products that are the same price, or even cheaper, at other times of the year.
“There are good deals to be found but they can be few and far between. Our experts sift through thousands of deals every day during the sales to hand-pick genuine deals on products we think are worth buying. Our advice is simple: take your time, don’t be fooled by clever marketing and do your research.”
The agenda
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7.45am GMT: French GDP report for Q3 2025 (second estimate)
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9am GMT: Italian GDP report for Q3 2025 (second estimate)
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1.30pm GMT: Canadian GDP report for Q3 2025 (first estimate)
