UK Budget 2025

Rachel Reeves has presented the highly anticipated Budget, although an unexpected early release of the Office for Budget Responsibility’s (OBR) Economic and Fiscal Outlook briefly diverted attention. Despite this unusual development, we have been monitoring events closely and are pleased to share our initial thoughts. 

Encouragingly, the UK’s fiscal outlook is stronger than previously assumed, with a £22bn fiscal buffer providing the Chancellor with greater flexibility for the year ahead, an important signal of resilience. Initial market sentiment has been broadly constructive, reflecting confidence in the fiscal trajectory. Notably, the Office for Budget Responsibility has revised its growth forecast with a modest 0.3% downgrade. However, the UK economy is still projected to expand by 1.5% this year, an improvement on the previous estimate of 1%. This reinforces rising optimism in the economic outlook, supported by the IMF’s projection that the UK will be the second fastest-growing G7 economy in 2025.

Targeted interventions to reduce energy and freeze transport costs are expected to ease household financial pressures and support a downward trend in inflation. The Chancellor is strategically deploying fiscal measures, such as freezing rail fares and reducing utility bills, to reinforce economic stability, a move described as her “White Rabbit.” Taken together with the latest OBR inflation projections, these developments may create the conditions for the Bank of England to consider an interest rate cut at its December meeting.

Key takeaways

• The full £20,000 ISA allowance will remain, but £8,000 of this will now be designated exclusively for investment purposes rather than cash ISAs. Individuals aged over 65 will retain the full £20,000 allowance for cash.

• Freezing tax thresholds for three years from 2028–29, raising an estimated £8bn.

• A council tax surcharge will apply to properties exceeding £2 million in value, effectively introducing a mansion tax for high-value homeowners. This surcharge will increase further for properties valued above £5 million.

• An interim stamp duty freeze for new stock-market listings (IPOs) on the London Stock Exchange for three years.

• National Insurance will be charged on salary-sacrifice pension contributions above an annual £2,000 threshold from April 2029.

Look out for our Wisdom Shared podcast budget special later this week.