Sterling rises as UK markets await Rachel Reeves' first budget

​​​Pound rises ahead of budget announcement

​Sterling is rising as investors position ahead of Rachel Reeves' first budget at 12.30pm. The pound has extended its recent gains, with UK equities also edging higher in morning trade.

​The FTSE 100 and FTSE 250 both opened firmer. Markets are awaiting details on tax measures and spending plans from the chancellor's statement.

​Trading volumes are in line with recent sessions. The pound's gains come as investors adjust positions ahead of the fiscal announcement.

​UK government bonds are trading slightly higher in yield terms. Markets are focused on the fiscal headroom figures that will be announced alongside the budget measures.

​Fiscal headroom and minimum wage increase in focus

​Reeves is expected to increase the government's margin for error in the budget. Analysts doubt she can lift the fiscal headroom to £20 billion, though an increase from current levels is anticipated.

​The National Living Wage will rise 4.1 percent to £12.71 per hour. This continues a long-term trend that has taken the wage floor to roughly two-thirds of median pay.

​The minimum wage increase represents the latest in a series of annual rises. The rate applies to workers aged 21 and over from April 2025.

​Previous increases have consistently outpaced inflation over recent years. The Low Pay Commission recommends the rates based on economic conditions and employment data.

​Living standards and inflation concerns remain

​Take-home pay for hourly workers in London remains far below the recommended London Living Wage, even with the increase. The voluntary London Living Wage currently stands at a higher level than the statutory minimum.

​Economists warn that higher wages could fuel second-round inflation effects. Firms may pass on increased labour costs to consumers through higher prices.

​Wage growth has been running above inflation in recent months. This represents a shift from the period when inflation was eroding real wages.

​The relationship between wage increases and inflation remains a key consideration for policymakers. The Bank of England (BoE) monitors wage data closely when setting interest rates. Traders can follow currency movements through forex trading platforms.

​UK markets underperform European peers

​Both the FTSE 100 and FTSE 250 are underperforming continental peers in Wednesday's trading. Defensive consumer stocks are weighing on the blue-chip index.

​Bond yields are slightly higher on the day but remain off recent peaks. Markets are watching for the size of the fiscal buffer that will be announced.

​Gilt yields had risen in previous sessions ahead of the budget. The 10-year gilt yield has fluctuated within a range over the past week.

​European markets are edging higher on growing US rate-cut expectations. Progress in Ukraine peace talks has also supported broader risk sentiment across the region.

​WPP faces FTSE 100 exit as Pets at Home rebounds

​WPP is poised to drop out of the FTSE 100 benchmark after a steep share price slide. The advertising group has faced client losses and disruption related to AI developments.

​The company's market capitalisation has fallen below levels typically required for FTSE 100 membership. Index reshuffles occur quarterly based on market values at the calculation date.

​Pets at Home shares jumped after the retailer met profit estimates. The company outlined a turnaround plan and announced new initiatives in insurance and veterinary services.

​The pet supplies retailer has been expanding its services division. This includes in-store veterinary practices and pet insurance products. Investors interested in individual stocks can learn how to trade shares.

​Global backdrop provides support

​European markets are edging higher on Wednesday. Growing expectations for US rate cuts and progress in Ukraine peace talks are supporting broader risk sentiment.

​Asian markets gained overnight following weaker US economic data. This boosted bets that the Federal Reserve (Fed) will cut rates at its next meeting.

​US equity futures are showing modest gains ahead of the New York open. Technology stocks have provided support following recent earnings updates.

​The global backdrop remains focused on central bank policy. Markets are pricing in rate cuts from the Federal Reserve while the Bank of England's (BoE) path remains less clear. Traders can access markets through spread betting or CFD trading.

​Key data and events ahead

​The UK budget announcement at 12.30pm represents the main event for markets on Wednesday. Rachel Reeves will deliver her first budget as chancellor.

​Tax measures and spending plans will be outlined in detail. The Office for Budget Responsibility will publish updated economic forecasts alongside the budget.

​Markets will focus on the fiscal headroom figure and gilt issuance plans. The size of borrowing requirements affects gilt yields and the pound.

​Further reaction to the budget is expected through the afternoon session. Trading volumes typically increase around major fiscal announcements. Those looking to access markets can open a trading account to trade around key events.