Highlights
As per recent leaks, probably the centrepiece of today's announcement was another 2 percentage point reduction in the National Insurance rate for workers, the main rate falling from 10 percent to 8 percent. Other measures include freezing duties on alcohol and fuel for another 12 months (which combined should subtract 0.2 percentage points off inflation in FY2024/5) and an increase in the VAT registration threshold.
The windfall tax on energy companies will also be extended for an additional year to 2029 while planned annual growth of day-to-day government spending is held at 1 percent in real terms over the next parliament. This is slightly stronger than had been speculated in some quarters. In addition, there will be a new public sector productivity plan aimed at significantly raising productivity rates, particularly in the National Health Service.
For government finances, the independent Office for Budgetary Responsibility (OBR) now sees public sector borrowing slightly below its November forecasts. By the end of the 5-year projection period, the deficit/GDP ratio is expected to hit 1.2 percent, its lowest level since 2001. Headline debt is also projected to decline but more slowly than before. As a result, the revised forecasts show only a relatively tight £8.9 billion of headroom versus the fiscal target compared with the November forecast of £13.0 billion.
There were no major measures reported today that had not already been trailed in the media and, in sum, the Budget should have little impact on the outcome of the BoE MPC meeting due later this month. The bank is still far from convinced that inflation is heading sustainably lower so any meaningful additional fiscal stimulus would simply have pushed any reduction in Bank Rate further down the road. This was not the case today but an early cut in rates seemingly remains off the table.
Today's package was always going to be about trying to achieve the tricky balance of providing some good news for the voting public without upsetting financial markets already worried about the size of government borrowing. As it is, with the overall tax burden still rising, the measures should leave investor sentiment broadly unchanged and the electorate no more likely to vote for the Conservatives at the next election than before the Chancellor stood up to speak.
The windfall tax on energy companies will also be extended for an additional year to 2029 while planned annual growth of day-to-day government spending is held at 1 percent in real terms over the next parliament. This is slightly stronger than had been speculated in some quarters. In addition, there will be a new public sector productivity plan aimed at significantly raising productivity rates, particularly in the National Health Service.
For government finances, the independent Office for Budgetary Responsibility (OBR) now sees public sector borrowing slightly below its November forecasts. By the end of the 5-year projection period, the deficit/GDP ratio is expected to hit 1.2 percent, its lowest level since 2001. Headline debt is also projected to decline but more slowly than before. As a result, the revised forecasts show only a relatively tight £8.9 billion of headroom versus the fiscal target compared with the November forecast of £13.0 billion.
There were no major measures reported today that had not already been trailed in the media and, in sum, the Budget should have little impact on the outcome of the BoE MPC meeting due later this month. The bank is still far from convinced that inflation is heading sustainably lower so any meaningful additional fiscal stimulus would simply have pushed any reduction in Bank Rate further down the road. This was not the case today but an early cut in rates seemingly remains off the table.
Today's package was always going to be about trying to achieve the tricky balance of providing some good news for the voting public without upsetting financial markets already worried about the size of government borrowing. As it is, with the overall tax burden still rising, the measures should leave investor sentiment broadly unchanged and the electorate no more likely to vote for the Conservatives at the next election than before the Chancellor stood up to speak.
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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.
