Highlights
Not very long ago, Chancellor of the Exchequer Jeremy Hunt was ruling out tax cuts due to overshooting inflation and historically very high levels of government debt. Inflation has fallen, but remains more than double its 2 percent target, and over the financial year to date, public sector borrowing is up around 25 percent versus the same period a year ago. However, much as expected, Hunt still used today's Autumn Statement to announce a fiscal package clearly aimed at bolstering the Conservative Party's lowly standings in the opinion polls ahead of a probable general election in 2024.
The leeway for around £20 billion worth of the measures, including a hefty increase in state pensions, help for the lower paid, a sizeable boost for business investment and a cut in employee National Insurance contributions, was provided by the new economic forecasts from the independent Office for Budget Responsibility (OBR). These show a faster decline in both borrowing and the debt/GDP ratio versus the projections supplied in March. Indeed, the former is now seen falling from 3.0 percent of GDP in FY2024/5 (versus 3.2 percent in March) to 2.2 percent (versus 2.8 percent) in FY2025/6 and to just 1.1 percent in FY2027/8.
Nonetheless, with the UK economy widely expected to be one of the worst performers in the G10 bloc next year, today's stimulus is probably too small to impact what, at best, seems likely to be a very sluggish economic outlook. Tax as a percent of GDP still peaks at the same level as projected in March - a record 37.7 percent in FY2028/9. Moreover, expected growth has been revised down to only 0.7 percent from 1.8 percent in 2024 and to 1.4 percent from 2.5 percent in 2025. It is also difficult to see the measures doing much to narrow the current 20 percentage point plus poll gap versus the opposition Labour Party.
However, what they may do is leave the BoE MPC's hawks all the more worried that inflation will not decline at an acceptably rapid pace. As it is, the OBR's new forecast shows attaining the 2 percent mark will now take longer than previously expected. As such, while the December BoE meeting is widely seen leaving policy on hold, the chances of another split vote is now at least a little higher.
The leeway for around £20 billion worth of the measures, including a hefty increase in state pensions, help for the lower paid, a sizeable boost for business investment and a cut in employee National Insurance contributions, was provided by the new economic forecasts from the independent Office for Budget Responsibility (OBR). These show a faster decline in both borrowing and the debt/GDP ratio versus the projections supplied in March. Indeed, the former is now seen falling from 3.0 percent of GDP in FY2024/5 (versus 3.2 percent in March) to 2.2 percent (versus 2.8 percent) in FY2025/6 and to just 1.1 percent in FY2027/8.
Nonetheless, with the UK economy widely expected to be one of the worst performers in the G10 bloc next year, today's stimulus is probably too small to impact what, at best, seems likely to be a very sluggish economic outlook. Tax as a percent of GDP still peaks at the same level as projected in March - a record 37.7 percent in FY2028/9. Moreover, expected growth has been revised down to only 0.7 percent from 1.8 percent in 2024 and to 1.4 percent from 2.5 percent in 2025. It is also difficult to see the measures doing much to narrow the current 20 percentage point plus poll gap versus the opposition Labour Party.
However, what they may do is leave the BoE MPC's hawks all the more worried that inflation will not decline at an acceptably rapid pace. As it is, the OBR's new forecast shows attaining the 2 percent mark will now take longer than previously expected. As such, while the December BoE meeting is widely seen leaving policy on hold, the chances of another split vote is now at least a little higher.
Definition
Global-FYI tracks critical developments fon the global markets including political news, special central bank announcements, and substantial moves in the financial markets.
Description
Major political events and special announcements by the global central banks can shift both the short-term and long-term outlooks for the global economy and financial markets.
