Against a backdrop of surging bond yields and higher oil prices, UK investors became increasingly preoccupied by the possible measures that might be contained in the Labour government’s forthcoming Budget on 28 October.
- The Bank of England kept its base rate at 3.75%
- The triple lock on UK state pensions is set to end in 2030
- Inflationary pressures are expected to deepen
Pressure on the Chancellor: against a backdrop of surging bond yields and higher oil prices, UK investors became increasingly preoccupied by the possible measures that might be contained in the Labour government’s forthcoming Budget on 28 October. Inflationary pressures drove up government borrowing to £18.3 billion during August, compounding pressure on Chancellor of the Exchequer John Healey.
“‘It is likely that policy may have to tighten’” (BoE Governor Andrew Bailey)
Triple lock set to end: Prime Minister Andy Burnham revealed plans to remove the triple lock on UK state pensions from 2030, replacing them with a double lock alongside a link to earnings. Meanwhile, shares in UK housebuilders and building materials companies rose during September as the government announced a new scheme – “Your First Home” – to support first-time buyers. Over September as a whole, the FTSE 100 Index fell by 2%, while the FTSE 250 Index rose by 2.4%. Elsewhere, the ten-year gilt yield ended the month at 5.43%
Bank of England holds rates steady: the annualised rate of consumer price inflation rose at its fastest rate since March during August: higher fuel costs drove it up from 2.9% to 3.1%. According to the Office for National Statistics, average petrol prices reached their highest level since November 2022. Bank of England (BoE) policymakers held UK interest rates at 3.75% at their September meeting, bucking a broader trend that saw central banks in the US , Japan , and the eurozone increasing their rates. Looking ahead, however, tightening may be on the horizon: the BoE increased its UK inflation forecast to “slightly over 4%” in early 2027, and three of the nine members of the Monetary Policy Committee voted in favour of an increase of 25 basis points. The BoE increased its UK inflation forecast to “slightly over 4%” in early 2027, and BoE Governor Andrew Bailey warned: “It is likely that policy may have to tighten”.
Better-than-expected economic growth: the UK economy expanded by 0.4% during July, compared with growth of 0.3% in June and no growth in May. Over the three months to July, it posted growth of 0.4%. Hot weather and the FIFA World Cup boosted activity. The Organisation for Economic Cooperation & Development (OECD) upgraded its forecast for UK economic growth this year from 0.9% to 1.1%, but downgraded its 2027 forecast from 1.1% to 1%. The OECD does not anticipate higher rates in the UK this year.
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