A Bothersome Budget
17 November 2025
To all Financial Friends
Just 11 days from now the Budget may well prove to put our financial futures on a knife edge. In a recent commentary I wrote these words. 'The perception of foreign investors of the soundness and safety of lending money to the UK government will be key to ongoing stability of the markets. How will the UK raise the funds it needs to preserve confidence in its economy? Raise taxes? Print more money? Borrow more money? Slash public expenditure or a mixture of all these things?'
So, Rachel Reeves lined us up for the shock of a possible 2p in the pound rise in basic rate tax. This, a clear-cut way of raising tax to provide the funds she needs to stabilise the economy and give courage to foreign investors to feel safer about lending money to the UK. A small change in the forecasts of future tax revenues, based on estimates of better marginal future economic growth, gives her a loophole to avoid this politically unfortunate action.
Instead, the likelihood is she will freeze tax allowances. Currently we can earn £12,750 before we have to pay tax. That amount will be frozen so as our income grows, we will be paying more and more tax. That extra tax taken from our pockets will plug, the said to be, £20 billion that needs to come from somewhere to prevent financial collapse.
The significant question is whether, whatever is announced in the Budget, is sufficient to reassure investors that the UK is still a safe place to lend their money too. Let's hope so! If so, then we have bought time to stabilise the economy for a more hopeful future. If not, then the UK bond market (fixed interest market) potentially implodes. In this event the chaos could see sharp drops across the market.
So Here, I Believe, Is What You Need to Know and Consider
Most advisers are likely to stick to normal practice. This is to acknowledge that no one knows the outcome, so do not be panicked into taking any action. Markets rise and fall and if our investing is for the long term take the rough with the smooth and stay put. Broad diversification relying on normal market patterns is the best strategy
As a DIY investor, if you fear possible loss because of the budget issues, you could choose to move your equity and bond funds into a Money Market fund or even into cash, seeking to protect against possible loss. If markets do fall then, you could drip feed money back into the markets. Never try to time the market and buy at the bottom - you won’t get that right! As markets, in time, return to previous and higher values you will have enhanced your returns. You will have turned the situation to your advantage.
In our recent commentaries, looking ahead as we have, specific assets, such as gold, infrastructure, consumer staples and defence holdings have been discussed. This, because in each case, there are contractual flows of income or logical reasoning, driving investors to these type of assets. Despite current high valuations and concern of a 'bubble' bursting, technology stocks with AI content are favoured by many.
The specific assets model seems to have the potential to suffer less than more broadly diversified assets, which rely on the bond market as a buffer against loss. The economic background of war, inflation, global debt, global warming and considerable uncertainty gives rise to the hope that these assets may prove a good choice?
It has to be said that there is not a single human being, or organisation, no matter how highly qualified, or through life experience, can predict for certain the best thing to do. That said, the above, I trust gives food for thought in a common-sense kind of way.
As a subscriber to Your Financial Friend feel free to use your 'Hotline to Harris' facility to come and talk things through. Information and guidance as you make up your mind. Time to talk? www.calendly.com/yourfinancialfriend.
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
