In its latest analysis of the UK’s autumn budget, ING explored four potential scenarios. However, the primary risk to the markets lies not in the figures but in Chancellor Rachel Reeves.

The bank’s baseline forecast remains quite optimistic, predicting that Reeves will raise taxes while avoiding measures that could reignite inflation. Markets have already begun to price this scenario in. As a result, sterling is weakening, bond yields are declining, and expectations for the Bank of England's interest rates are shifting towards a more dovish stance. ING’s target for the EUR/GBP exchange rate is set at 0.880.

Yet, the spotlight is not on the budget but rather on the human factor. A few days ago, Reeves found herself in a difficult situation when it was revealed she lacked the necessary license to rent out her own home. The opposition quickly demanded her resignation.

The issue was swiftly resolved. Prime Minister Keir Starmer publicly supported Reeves, and the real estate agency admitted its mistake. On the surface, the incident seemed to be over. However, the market remained unsettled.

In July, when Reeves was previously on the brink of resigning, bond yields surged and the British pound fell significantly. Investors are acutely aware that a change in chancellors often leads to market turbulence. A new minister might reconsider fiscal policies, increase borrowing, or simply introduce unpredictability into the market, especially at a time when government debt issuance remains high.

ING notes that while Reeves' resignation is unlikely, its consequences would be immediate, leading to rising yields, a falling pound, and a spike in volatility. 

In a country where political scandals occur more frequently than updates to economic forecasts, even a minor licensing mistake can destabilize the bond market.