Autumn Budget 2025: What It Means for UK Markets

The Autumn Budget 2025 comes at a crucial time for UK markets, with investors closely watching for signals on the government’s plans for taxes, spending, and borrowing. Alongside the Chancellor’s announcements, the Office for Budget Responsibility (OBR) will publish its latest economic forecasts covering growth, inflation, productivity, and the public finances. These projections are vital for traders and analysts, as they help shape expectations for future interest rates and overall market sentiment heading into 2026.

Any shifts in fiscal policy or changes in the OBR’s outlook could influence how key sectors — including banking, housing, utilities, and consumer stocks — perform in the coming year.

GDP Growth Outlook: OBR Expected to Downgrade Forecasts

The OBR is widely expected to downgrade the UK’s GDP growth forecasts, reflecting weaker recent momentum, soft consumer demand, and ongoing structural challenges.

Why this matters for investors

• Slower growth tends to lead to weaker corporate earnings.

• Lower tax revenues reduce the government’s capacity for fiscal support.

• A weaker growth outlook often contributes to a more cautious tone in the stock market, particularly in cyclical sectors.

Overall, a downgrade in GDP expectations can weigh on investor confidence and prompt greater market volatility.

Productivity: Long-Term Growth Potential Under Pressure

The OBR is also expected to revise down the UK's productivity growth projections. Productivity is a key driver of economic performance and long-term earning potential.

Why this matters for markets

• Productivity influences profits, wages, and the tax base.

• A weaker outlook reduces confidence in long-term earnings growth.

• Lower productivity raises concerns about public finance sustainability, which can unsettle bond and equity markets.

Persistent productivity challenges could therefore place downward pressure on UK valuations, especially in growth-focused industries.

Inflation: Easing, But Not Back to Target Yet

Inflation is expected to continue easing through 2025, although it may not return to the Bank of England’s 2% target immediately. “Sticky” inflation remains a core concern for policymakers and investors.

Why inflation matters for UK markets

• Sticky inflation affects expectations for interest rates staying higher for longer.

• Higher rates typically weigh on valuations in growth and tech sectors.

• Consumer-facing sectors may face slower demand if household budgets remain under pressure.

A slower-than-expected decline in inflation could influence the path of rate cuts in 2026, affecting both bond yields and equity pricing.

Public Borrowing and Debt: Fiscal Constraints Remain Tight

Borrowing is likely to remain elevated, with public debt staying high relative to GDP. This limits the government’s fiscal flexibility in the medium term.

Why debt levels matter for investors

• High debt increases the risk of future tax rises or spending cuts.

• Markets may demand higher risk premiums, pushing yields up.

• Fiscal constraints can reduce confidence in the government’s ability to support growth.

A challenging fiscal backdrop may influence sterling, bond markets, and sectors reliant on public investment.

Fiscal Headroom: The Government Faces a Significant Budget Gap

Most forecasts suggest a sizable fiscal shortfall, meaning the government will face difficult choices on whether to raise taxes, cut spending, or rely on optimistic growth assumptions.

Why fiscal headroom matters for markets

• Tax or spending changes directly affect consumer incomes and business confidence.

• Reduced fiscal support may lead to slower economic activity.

• Any policy tightening could feed through to corporate earnings and sector performance.

Investors will be watching closely to see how the Chancellor addresses this gap.

What This Means for UK Markets in 2026

Taken together — weaker growth, lower productivity, persistent inflation pressures, and high public debt — create a cautious backdrop for UK investors.

Likely market impacts

• Interest-rate–sensitive sectors (e.g., housing, real estate, and growth stocks) may experience volatility.

• Consumer sectors could remain under pressure if incomes stay tight.

• Companies with strong balance sheets, reliable cash flows, and pricing power may be viewed more favourably.

• Defensive sectors such as utilities, healthcare, and staples may outperform in a low-growth environment.

The Autumn Budget 2025 will therefore play a key role in shaping market sentiment as the UK moves into 2026, potentially shifting investor positioning across multiple sectors.