Autumn Budget 2021: what happened and how will the pound react?

Finance minister Rishi Sunak unveiled the contents of his famous red briefcase in the House of Commons on Wednesday – and he was in a bullish mood. Back in March, the Chancellor of the Exchequer’s Spring Budget statement painted a bleak picture of the state of the UK’s finances, as the nation prepared to take its first tentative steps out of yet another crippling lockdown. Fast-forward seven months and he was full of vim and vigour against a backdrop of post-lockdown economic optimism.

In an upbeat address, he said the UK economy had not been hit as hard by the Covid pandemic as expected. And while the Chancellor was keen to stress his financial statement doesn’t draw a line under Covid, he believes it begins the work of rebuilding the economy post-pandemic.

So, let’s review the main talking points from the Autumn Budget statement from the pound’s perspective.


Mr Sunak stressed that lowering taxes would be “my mission over the remainder of this parliament”. In doing so he reaffirmed his belief in a Britain where taxes are lower, and the state is smaller. The Chancellor is well-placed to promise more spending now and tax cuts later because the economy is doing better than the Office for Budget Responsibility (OBR) – a non-departmental public body established by the UK government to provide independent economic forecasts and independent analysis of the public finances – envisaged in the spring.

Looking further ahead, however, plans for tax cuts before the next general election will require sacrifices in public spending or extra borrowing.

Economic growth

Economic growth is higher, and the OBR predicts the long-term damage caused to the economy by the pandemic has been reduced from 3% to 2% of GDP. Crucially, Sunak stated that the OBR projects economic growth to be 6.5% this year, up from the 4% rate forecast at the last budget in March – when the UK was still in lockdown – and completing the return of UK GDP to its previous peak by the end of the year.

Looking further ahead, however, the OBR forecasts that the UK economy will revert to its 1.5% pre-pandemic average growth rate during the last three years of its projection to 2026, as Brexit and the lingering effects of the 2008 financial crash drag on the economy.


Unemployment is expected to peak at 5.2% next year, lower than 11.9% previously predicted. The Chancellor set out plans to deliver “stronger employment, with fewer people out of work and more people in work” by raising spending on skills and training by £3.8bn over the parliament – an increase of 42%. The government’s plans are built on the belief that improving lifelong learning is a key part of improving productivity.

The Budget came hot on the heels of the end of the furlough scheme, introduced to assist businesses and employees through the Covid-19 crisis in March 2020. Uncertainty over the effects of the scheme should be resolved over the coming months, which will help paint a clearer picture of the health of the UK labour market.


The Chancellor acknowledged that inflationary pressures are impacting the UK economy, with the OBR predicting that inflation will average above 4% next year. A peak of 4.4% could prove to be optimistic, it said, adding that a more pessimistic outcome could prompt the Bank of England (BoE) to act by tightening monetary policy.

“I understand people are concerned about global inflation – but they have a government here at home ready and willing to act,” Sunak said.

What does this mean for the pound?

The pound’s initial reaction to the Budget statement was muted, as investors focused on whether the BoE would proceed with an interest rate hike at its upcoming meeting of policymakers on 4 November. The UK currency is being supported by mounting expectations that the BoE will become the first major central bank to raise rates since the Covid-19 pandemic struck, in a bid to curb rising prices. Therefore, official forecasts that inflation could take off next year will be carefully considered by the BoE when it meets to decide whether to raise the cost of borrowing this week.

Looking further ahead, investors in the pound will be wary of projections by the OBR that the brakes will be applied to the UK economy’s average growth rate in the coming years. They will also be mindful that a key tax change – the Chancellor’s manifesto-breaking pledge to raise the rate of national insurance to fund social care – was revealed in September but was hardly mentioned in Wednesday’s speech. Not to mention the post-dated hike in corporation tax, which will increase to 25% in April 2023.