The Chancellor has delivered the UK Budget 2025, setting out the government's fiscal plans and economic priorities for the year ahead. For anyone moving money internationally, whether for business operations, property investments, or personal transfers, the Budget contains several key announcements that could affect exchange rates and transfer costs.
This analysis examines the main Budget measures and explains what they mean for your international payments.
Economic Growth Upgraded
The Office for Budget Responsibility has upgraded Britain's growth forecast to 1.5% for 2025, up from the 1% forecast made in March. This represents a significant improvement and places the UK on course to be the second-fastest growing economy among G7 countries.
For currency markets, stronger economic growth typically supports Sterling. When an economy performs better than expected, it can attract international investment and increase demand for the currency. If you're planning to buy Sterling for international transfers, improved growth prospects could put upward pressure on exchange rates.
However, currency markets respond to multiple factors, and growth forecasts represent just one element of the broader economic picture.
Inflation Falling Faster
One of the most significant developments for anyone with international payment commitments is the inflation outlook. The OBR confirmed that government policy will reduce Consumer Prices Index inflation by 0.4 percentage points in 2026-27, representing the biggest near-term reduction in inflation due to government policy ever forecast by the OBR at a single fiscal event outside of a crisis.
Lower inflation creates a more stable environment for currency markets. The Bank of England has cut interest rates five times since Labour took office, and with inflation now expected to fall faster, this creates more predictability for exchange rate movements.
For international transfers, lower inflation means less uncertainty about future exchange rates, making it easier to plan when to move money and budget for overseas commitments.
New Trade Agreements
The government has struck three trade deals with the United States, India, and the European Union. The India free trade agreement alone is expected to increase GDP by over 0.1% in the long term.
Better trade relationships typically increase the volume of currency exchange between countries. When trade flows increase, it creates more liquidity in currency markets, which can lead to more competitive exchange rates. For businesses making payments to the US, India, or EU countries, these trade deals could support improved conditions over time.
Productivity Challenge
Whilst the Budget contained positive news on growth and inflation, the OBR revised down its forecast for underlying medium-term productivity growth. This revision alone reduces the amount of revenue the government expects to collect by around £16 billion in 2029-30.
Productivity is fundamental to long-term economic health. When productivity grows slowly, it limits wage growth and constrains the economy's ability to expand sustainably.
For currency markets, lower productivity growth represents a structural challenge that could weigh on Sterling over time. Whilst short-term factors like improved growth and falling inflation may support the currency, longer-term productivity concerns create uncertainty about Britain's economic trajectory.
Fiscal Responsibility and Sterling Stability
The government is meeting its fiscal rules, with borrowing forecast to fall as a share of GDP in every year of the forecast. The current budget will move into surplus in 2028-29, meeting the stability rule a year early. The buffer against the stability rule has more than doubled to £21.7 billion.
Currency markets typically respond positively to fiscal discipline. From 2025 to 2030, the UK is forecast to reduce borrowing by more than any other G7 country, which signals fiscal credibility to international investors.
For anyone planning international transfers, this fiscal stability provides a foundation for more predictable currency movements.
Energy Costs and Economic Stability
The Budget is delivering a package of measures to remove around £150 on average from household energy bills across Great Britain from April 2026. This reduction will be delivered through government funding of 75% of the domestic cost of the legacy Renewables Obligation and ending the Energy Company Obligation.
Lower energy costs benefit currency stability by reducing inflation pressure, improving business competitiveness, and increasing disposable income. For businesses making international payments, lower energy costs can improve margins and cash flow, making it easier to manage foreign exchange commitments.
Interest Rate Environment
The Bank of England has cut interest rates five times since Labour took office, responding to improved inflation dynamics. Interest rates directly affect currency values by influencing the returns available to international investors.
When interest rates fall, it can reduce demand for a currency because investors earn lower returns. However, rate cuts also stimulate economic activity, which can support currency values through improved growth prospects.
For anyone making international transfers, this creates a situation where lower rates might weaken Sterling against currencies where central banks are maintaining higher rates, but improved growth prospects provide offsetting support.
Tax Changes Affecting International Investors
The Budget introduced several tax changes that affect individuals and businesses with international interests. From April 2027, the government is creating separate tax rates for property income, with the property basic rate at 22%, the property higher rate at 42%, and the property additional rate at 47%.
The government is also introducing a High Value Council Tax Surcharge in England for residential properties worth £2 million or more from April 2028. New charges start at £2,500 per year, rising to £7,500 per year for properties valued above £5 million.
For international property investors, particularly those active in the UK market, these tax changes alter the financial calculations for holding UK property assets.
The government is also increasing the ordinary and upper rates of tax on dividend income by 2 percentage points from April 2026, and increasing the tax rate on savings income by 2 percentage points across all bands from April 2027.
These changes to how income from assets is taxed may influence decisions about international wealth structuring and the timing of cross-border transfers.
Cost of Living Measures
The government is freezing all regulated rail fares in England for one year starting from March 2026, saving the average passenger £300 per year on the most expensive routes. This marks the first time the government has frozen regulated rail fares for a year in 30 years.
On fuel costs, the government is extending the 5p fuel duty cut until the end of August 2026, with rates then gradually returning to March 2022 levels by March 2027.
The government will support the incomes of over 12 million pensioners through its commitment to the Triple Lock. The basic and new State Pension will be increased by 4.8% from April 2026, providing up to an additional £575 per year to pensioners depending on their entitlement.
From 1 April 2026, the National Living Wage will increase by 4.1% to £12.71 per hour for eligible workers aged 21 and over, representing an increase of £900 to the gross annual earnings of a full-time worker.
What This Means for Your International Transfers
The Budget creates a mixed picture for Sterling and international transfers. On the positive side, upgraded growth forecasts, falling inflation, and fiscal discipline provide support for currency stability. The combination of growth upgraded to 1.5%, inflation falling 0.4 points faster than expected, and the UK reducing borrowing more than any other G7 country represents fundamentally supportive news.
However, the productivity challenge creates longer-term uncertainty. The OBR's revised productivity outlook, which reduces expected tax receipts by £16 billion in 2029-30, highlights structural economic weaknesses that could weigh on Sterling over time.
For anyone planning international transfers, several practical considerations emerge:
Monitor timing carefully. The Budget's impact on currency markets will unfold over weeks and months. Short-term movements may be driven by market reactions to specific announcements, whilst longer-term trends will depend on whether growth and inflation outcomes match forecasts.
Consider your time horizon. If you have transfers planned within the next 12 to 24 months, the improved short-term economic outlook is most relevant. For longer-term commitments stretching several years ahead, productivity concerns and fiscal sustainability become more important.
Stay informed about economic data. The Budget sets the framework, but currency markets will respond to ongoing economic releases. Growth figures, inflation data, and employment numbers will all influence whether Sterling strengthens or weakens.
Understand your exposure. If you're transferring money from the UK to countries with higher interest rates, you may face exchange rate pressure as the differential affects currency values. Conversely, if you're bringing money into the UK, lower UK rates could work in your favour.
Work with specialists. Currency markets are complex, and professional guidance helps you navigate volatility. Understanding how government policy affects exchange rates is essential for making informed decisions about international transfers.
Planning Your Currency Strategy
The Budget establishes the government's fiscal framework for the year ahead, but currency markets will respond to how these policies are implemented and whether economic forecasts prove accurate.
The combination of stronger near-term growth, faster-falling inflation, and fiscal responsibility suggests a government committed to economic stability. However, productivity challenges and the scale of public investment required create areas of uncertainty that markets will monitor closely.
For businesses and individuals moving money internationally, understanding these dynamics helps you plan more effectively. Whether you're making regular business payments, investing in property abroad, or supporting family overseas, the Budget's impact on Sterling will affect the value you receive from your international transfers.
At X Rate Capital, we monitor these economic developments closely to help our clients navigate currency markets with confidence. The Budget represents one data point in a constantly evolving picture, and staying informed about how government policy affects exchange rates helps you make better decisions about when and how to transfer funds internationally.
