Pound Sterling: Reeves to Spell Out the Form of Economic Revival

Picture by Kirsty O’Connor / Treasury

Starmer & Reeves's desperation is showing, which is good for the Pound.

The British Pound is recovering into month-end, helped by an improvement in market positioning, falling bond yields and the dawning realisation from the UK's leaders that action is needed to boost the economy.

The Prime Minister and his Chancellor are desperate to ignite economic growth, with both embarking on a blitz to talk up the economy. Reeves said at the weekend the UK needs to emulate Donald Trump's positivity and Keir Starmer said on Tuesday he intends to "hardwire" growth into his government's plans.

Rachel Reeves will speak on Wednesday and detail these plans in a major speech in Oxfordshire.

"Low growth is not our destiny," Reeves will say, according to remarks made by the Treasury Department to the media. "But growth will not come without a fight."

She will pledge to go "further and faster" to boost the UK economy by unblocking new infrastructure projects.

Economists and commentators have said the biggest mistake Reeves and Starmer made when taking office was to talk down the economy and the country's finances. This was a political strategy that they thought would paint the previous government in a poor light and lay the ground for business tax rises.

GBP/EUR investment bank consensus forecast for 2025. See the median, mean, highest and lowest point targets, giving a highly accurate forecasting resource. Request it Now.

Economically, it was the wrong strategy as it smashed business and consumer confidence and flatlined growth.

"It is true that the words/tone leading into the October Budget had a very clear and measurable negative impact on sentiment," says Simon French, economist at Panmure Liberum.

Messaging in 2025 is far more upbeat and it looks as though Starmer and Reeves want to inject the confidence required to revive 'animal spirits' amongst businesses.

The tone will have helped steady UK bond and currency markets, where we see ten-year yields down from multi-year highs and both GBP/EUR and GBP/USD rising once again.

Picture by Kirsty O'Connor / Treasury

To be sure, global conditions are also more benign, which naturally helps the Pound, but domestic sentiment will matter greatly.

Markets will welcome the rhetoric, but ultimately, the details will determine whether the GBP rally has legs.

"Unfortunately for Starmer, actually engineering growth will take more than endlessly repeating the word and hoping for the best. Tax cuts, deregulation, investment in technology, better infrastructure, and much else besides, is needed to actually deliver some positive economic momentum," says Michael Brown, Senior Research Strategist at Pepperstone.

"What will undermine the speech will be the elephant(s) in the room surrounding domestic energy supply, recent customs frictions, and layering of employment costs. All three have had a clear measurable impact on consumer inflation, trade density, and labour demand," says Panmure's French.

Media reports suggest Reeves’ speech on Wednesday will include announcements focused on boosting the region around Oxford and Cambridge, which the government says has "the potential to be Europe’s Silicon Valley."

The chancellor is due to announce funding to improve transport links in the area, as well as progress on a new housing development in Cambridge and the appointment of science minister Patrick Vallance as the Oxford-Cambridge "growth corridor champion."

"Oxford and Cambridge offer huge economic potential for our nation’s growth prospects," Reeves will say. "But there are far too many supply-side constraints on economic growth in the region."