LONDON, UNITED KINGDOM – All eyes in Nairobi’s financial and policy circles will be on London this Wednesday, 26 November 2025, as UK Chancellor of the Exchequer Rachel Reeves unveils a critical budget for the Labour government. The statement, set to be delivered alongside a forecast from the Office for Budget Responsibility (OBR), is expected to introduce significant tax increases and spending cuts to manage a fiscal gap estimated to be between £20 billion and £40 billion. While a domestic UK affair, the budget’s ripple effects are poised to reach Kenya, a key strategic and economic partner.

The UK economy is navigating a period of modest growth, with forecasts for 2025 hovering between 1.1% and 1.5%. Facing high public borrowing and persistent inflation, Chancellor Reeves has signaled a focus on fiscal discipline. Having pledged not to raise the main rates of income tax, national insurance, or VAT, the government is reportedly considering a range of other measures. These include freezing income tax thresholds, which pushes more earners into higher tax brackets, alongside potential new levies on high-value properties, gambling, and changes to ISA savings allowances and pension tax relief.

Trade and Investment Under Scrutiny

The UK is a vital economic partner for Kenya, with total trade in goods and services reaching £2.1 billion in the year ending June 2025, an 11.9% increase from the previous year. This relationship is anchored by the UK-Kenya Economic Partnership Agreement (EPA), which grants Kenyan exporters duty-free, quota-free access for key products like tea, coffee, flowers, and vegetables. However, a slowdown in the UK economy or a squeeze on household incomes resulting from the new budget could dampen consumer demand for these crucial Kenyan exports, impacting farmers and businesses.

The UK is also a leading source of foreign direct investment (FDI) for Kenya, with a stock of £804 million at the end of 2023. In July 2025, the two nations signed a refreshed five-year Strategic Partnership, aiming to unlock over KSh 427 billion in investments and double trade volumes. The stability of the UK economy is critical to realizing these ambitions. Any measures in the budget that undermine British investor confidence could slow the flow of capital into key Kenyan sectors like finance, manufacturing, and technology.

Shifting Aid Landscape and Remittance Pressures

The UK’s domestic fiscal pressures have already reshaped its foreign aid strategy. In February 2025, the government announced plans to gradually reduce its Official Development Assistance (ODA) budget from 0.5% of Gross National Income (GNI) to 0.3% by 2027 to fund increased defence spending. This policy involves shifting away from direct bilateral aid towards funding multilateral institutions like the World Bank. The upcoming budget could accelerate these cuts, affecting Kenyan programmes in humanitarian aid, governance, and climate resilience. For the 2025/26 financial year, the UK's overall aid to Africa is projected to fall by 12%.

Furthermore, the financial wellbeing of the estimated 200,000 Kenyans living in the UK is a vital component of the Kenyan economy. Remittances from the diaspora are Kenya's largest source of foreign exchange, surpassing traditional exports. In 2023, inflows from the UK alone amounted to USD $334 million. Tax hikes targeting UK workers could reduce the disposable income of the Kenyan diaspora, potentially shrinking the volume of these crucial financial inflows. The average cost of sending remittances from the UK to Kenya remains above the UN's 3% target, and any reduction in sending capacity would be keenly felt by families back home.

As Chancellor Reeves finalizes her budget, Kenyan policymakers, exporters, and citizens will be watching closely. The decisions made in Westminster to balance Britain's books will have far-reaching consequences, testing the resilience of the economic partnership and shaping financial realities for thousands of Kenyans both at home and abroad.