Leading Indicators | Fiscal caution, softer labour market and signs of improving inbound capital

UK Budget Preview: Fiscal discipline and tax mix in focus

Speculation is building ahead of the November Budget, with markets watching closely for signs of fiscal discipline and a commitment to stability. A cautious approach could help anchor inflation expectations and rebuild confidence in the UK’s fiscal outlook. Greater credibility may, over time, reduce risk premia on government bonds and improve financing conditions, supporting broader investment activity. The OBR expects total tax receipts to reach around £1.3 trillion by 2029–30, with income tax, NICs and VAT accounting for roughly three-quarters of total revenue.

Cooling labour market strengthens case for BoE rate cut

The UK unemployment rate edged up to 5.0% in the three months to September, from 4.8% previously, and above expectations of 4.9%. Private sector wage growth, closely monitored by the Bank of England for signs of labour market tightness, slowed to 4.2%, the weakest pace since early 2021. The data suggests the labour market is losing some heat, with markets now pricing in an 80% chance of a December rate cut, up from 68% a day earlier.

Signals of improving inbound activity

The UK remains the leading destination for international capital YTD, with London holding its position as the world’s top metro market. Inbound investment into UK commercial real estate reached £5.9 billion in Q3, up +16% from Q2 2025 and +53% higher year-on-year. US inflows rose +19% quarter-on-quarter, while capital from Germany (+3,573%), Singapore (+303%), and Spain (+184%) also strengthened, reflecting a broader shift toward safe-haven markets.