Home›Forex›Major Pairs›Pound weakens as UK VAT cut on electricity fuels fisca…

Pound weakens as UK VAT cut on electricity fuels fiscal credibility concerns

BNY’s Geoff Yu said the scrapped 5% VAT charge from Oct. 1 could save households about £45 a year, but gilt and sterling weakness suggests investors are weighing whether the easing is funded.

Reported · Written up by our desk · Major Pairs

BNY’s Geoff Yu said the United Kingdom’s plan to remove Value Added Tax on household electricity bills is being tested as part of the country’s fiscal protection strategy, with market reaction pointing to concerns over funding credibility.

The policy, announced by Prime Minister Andy Burnham, scraps the 5% VAT charge from Oct. 1 as the first step in a cost-of-living package. The government said it will save families about £45 a year, cost £850 million in 2026 to 2027, and be financed by abandoning the previous administration’s digital ID plan.

Officials also said the measure could trim headline inflation by 0.1 percentage point, while acknowledging that broader energy price pressures remain elevated. Yu said the easing itself is manageable, but gilt and sterling weakness highlight a trade-off investors are watching, namely whether household support signals a broader political shift.

In FXStreet analysis tied to the same theme, GBP/USD extended its decline and reached about 1.3360, following Monday’s drop, as investors adopted a more cautious stance amid Middle East uncertainty and a lackluster UK labor market backdrop.

Latest closeGBP/USD 1.348 ▼0.5%

More like this

Sources