26 November 2025: UK bank shares rise after reports of budget tax reprieve

This must be the strangest budget lead-up ever.

Rachel Reeves has drip-fed the market extracts from her proposals via the Treasury, which has added to speculation about what measures she will announce later today to the House of Commons.

Increases in the minimum wage were announced yesterday, resulting in around 2.5 million workers getting a pay rise just above the current rate of inflation from next April. This measure is a “double-edged sword” for the economy. While it may add to inflation and force small and medium enterprises to find more, it should also boost the economy by putting more money in the hands of a wider group of people.

Reeves says she has three main goals: to cut the cost of living, reduce government borrowing, and cut NHS waiting lists. She has also said she does not want to add to inflationary pressures, which may allow the Bank of England to lower interest rates. This would benefit a wide range of borrowers and boost the property market.

Making that happen will necessarily involve taxes rising, even though she has already dismissed the idea of raising the basic rate of income tax. Both the Chancellor and the Prime Minister are deeply unpopular figureheads of a deeply unpopular Government. The issue with increasing income tax would be that the electorate would be concerned about how the money would be spent.

There will be a range of tax increases announced later, with the “sugar tax” increase announced yesterday as one of many likely changes.

Several sectors of the economy are crying out for help, with hospitality being the most obvious and desperate, but it is unlikely that Reeves will target any individual industry for help.

Every year, there is speculation about what the budget will contain, but the scale of leaks, intended or otherwise, has been off the charts this year. The Chancellor will see this as a make-or-break for the free hand she has been given since she took over at the Treasury last year. If the proposals are poorly received, the Prime Minister may face the dilemma of removing her to save his own skin.

Reeves will begin her speech at 12.30 pm, and there is always speculation about how long she will be on her feet.

The Labour Majority of around 80 seats means that there is no doubt that her measures will be passed. Still, a repeat of the protests that have accompanied her speeches last October and earlier this year could make the period between now and the end of the year crucial for the Cabinet, and bring Reform UK Leader Nigel Farage’s prediction of a 2027 General Election closer to being realised.

The market will collectively hold its breath this morning before the Budget is dissected to find any indications that a change in official interest rates will accompany the measures. However, the nature of the MPC is that its members will want to see the effect of any fiscal changes before adjusting monetary policy.

The pound rallied to a high of 1.3214 yesterday, as announcements already made indicated to traders and investors that it is unlikely that Reeves will discard her self-imposed borrowing limits to close the black hole in the country’s finances.

It closed at 1.3162 as traders closed positions, not wishing to be exposed to the additional volatility expected later.

Advisers and allies of President Donald Trump see Kevin Hassett, the White House National Economic Council director, as the frontrunner to succeed Jerome Powell as Federal Reserve chair, according to a media report on Tuesday.

The choice of Hassett would mean that Trump has a close ally at the Fed whom he knows well and trusts. He is perceived as someone who will carry out the President’s philosophy on monetary policy, something Trump still cannot understand and over which he has no influence.

With two weeks to go until the final FOMC meeting of the year, there is a feeling, driven by several speeches from FOMC members, that there will be a note of caution when discussion of a rate cut takes place.

While there are those, Stephen Miran, for example, who are still calling for the Fed Funds rate to be lowered, the majority see a rate cut as unnecessary and possibly stoking the flames of inflation, which has perhaps reached a turning point that Jerome Powell will not want to disturb.

On Monday, Federal Reserve Governor Christopher Waller said the job market was weak enough to warrant another quarter-point rate cut in December, although any action beyond that would depend on a flood of data delayed by the federal government shutdown.

Consumer confidence sagged in November as households worried about jobs and their financial situation, likely in part because of the recently ended government shutdown. The Conference Board said yesterday its consumer confidence index dropped to 88.7 this month, from an upwardly revised 95.5 in October, hitting its lowest level since April.

Economists polled by Reuters had forecast the index edging down to 93.4 from the previously reported 94.6 in October. “Consumers’ write-in responses about factors affecting the economy continued to be led by references to prices and inflation, tariffs and trade, and politics, with increased mentions of the federal government shutdown,” said Dana Peterson, chief economist at the Conference Board.

“Mentions of the labour market eased somewhat, but still stood out among all other frequent themes not already cited. The overall tone from November write-ins was slightly more negative than in October.”

Consumer confidence remained low among all income brackets. While confidence among those who earn less than $15,000 annually ticked up slightly, it still ranked as the group with the lowest consumer confidence.

FOMC members will begin their blackout in preparation for their latest meeting in a week. This means that many will take the opportunity to express their voting plans for the meeting, which takes place on December 9/10.

Meanwhile, Neel Kashkari has renewed his criticism of cryptocurrencies. This time, he is comparing crypto to the 1990s Beanie Babies bubble and arguing that crypto still fails to offer meaningful economic value. Kashkari made the comments during a recent appearance on CNN, where he was asked about the latest bout of crypto market volatility and whether the sector is entering another bubble phase.

The Minneapolis Fed chief, one of the Central Bank’s most outspoken crypto sceptics, reiterated that he still does not see a compelling reason for digital assets in everyday financial activity.

He argued that the primary example he hears is using crypto to circumvent banking rules such as know-your-customer and anti-money-laundering requirements.

“That sounds lousy to me as a Federal Reserve policymaker,” he added.

The dollar index lost ground yesterday, but stayed within its recent range. Traders are clearly wary of large rumoured sell orders placed close to the 101 level. The index fell to a low of 99.65 and closed at 99.81.

Speaking with confidence, Spanish Central Bank Governor José Luis Escrivá noted that his home nation drove 20% of all growth in the Eurozone in Q3, and that policymakers don’t have a bias toward cutting interest rates at present and could equally end up hiking them.

The Bank of Spain Governor, speaking in an interview at the Bloomberg Future of Finance conference in Madrid, insisted that the current stance doesn’t preclude a move either up or down.

“Full optionality means full optionality, not a cut,” Escrivá said. “The council has concluded that everything is balanced, and we meet, and we make decisions meeting-by-meeting. And I don’t see in any statement from the ECB any indication of a further cut as more likely than a move in the other direction.”

Spain is now responsible for a fifth of all GDP growth in the eurozone despite making up only a tenth of the bloc’s economy, new analysis shows. The figures underline how growth across the currency area is increasingly concentrated in just two countries: Ireland and Spain. Ireland, which accounts for just 4% of eurozone GDP, is providing around 40% of all growth in 2025.

France, representing roughly a fifth of the bloc, is set for 0.7%. While Italy, contributing around 15% of eurozone GDP, is forecast to expand by just 0.4%. Spain, by comparison, remains one of the eurozone’s standout performers.

The European Commission expects GDP growth of close to 3% in 2025, following 3.2% in 2024.

Strong job creation, rising real wages, inward migration and record tourism numbers continue to support domestic demand. Spain has also been a significant beneficiary of the EU’s recovery funds, channelling money into digital infrastructure, transport and renewable energy projects that have boosted investment.

Ireland’s success in 2025 is almost totally due to firm services output.

It was the same old story in the region's former powerhouse. Germany’s longest stagnation has now been confirmed. The economy will remain stuck until fiscal stimulus begins to take effect.

In the past three years, the German economy has recorded only two quarters of positive growth. On average, the economy has shrunk by 0.1% quarter-on-quarter in every single quarter since the fourth quarter of 2022.

The causes of Germany’s longest economic stagnation since World War II have been thoroughly analysed and discussed. The combination of cyclical headwinds, structural changes, and challenges has put the economy in a state of what appears to be an endless paralysis.

Since this story is well known, today’s German GDP data offers two fresh takeaways: when debating ‘zero growth,’ consider the industrial workers who lost their jobs and the strain years of stagnation place on social security systems. The other implication is that traditional leading indicators should be taken with an even bigger pinch of salt. As the PMI composite has been above the 50-mark since the summer, it's clear that the old rule of thumb that a PMI above 50 signals economic expansion no longer holds.

The euro looks set to challenge the 1.16 level as the dollar has come under intense selling pressure above the 100 level.

The common currency rallied to a high of 1.1586 yesterday but fell back to close at 1.1565.

Have a great day!