While playing a Mage, I was heavily encumbered and doing the thousand yard crawl to the map exit, I cast the spell Giant Strength and noticed it didn't reduce my encumbrance at all. However, after I picked up an item, I sped up dramatically. Strange!
It seems the Giant Strength spell doesn't recalculate encumbrance until your load changes, either by picking up an item, dropping an item, or consuming an item.