Highlights
The UK's Labour government is set to release its first budget, marked by significant fiscal adjustments to address public finance challenges. Finance Minister Rachel Reeves revealed plans for £40 billion in tax hikes, targeting areas like National Insurance contributions, capital gains, and private school fees, while also freezing fuel duty. This approach aims to fund essential public service investments and compensation payments, as well as catalyse £70 billion in growth through the newly established National Wealth Fund.
A strategic shift in the government's borrowing target from public sector net borrowing (PSNB) to public sector net financial liabilities (PSNFL) will incorporate a broader asset base than previously, reducing the borrowing figure. This change is expected to ease government efforts to achieve fiscal targets, offering more flexibility within the public finances framework.
A noteworthy change is the increase in the Energy Profits Levy on oil and gas firms to 38 percent, extended until 2030. Introduced in 2022, this levy aims to capture windfall profits, with Reeves ensuring industry stability through retained first-year allowances and a decarbonisation incentive.
With these fiscal moves, the Office for Budget Responsibility revised GDP growth forecasts to 1.1 percent for 2024 and 2 percent for 2025, up from earlier predictions. However, budget measures may marginally elevate inflation, potentially slowing the Bank of England's pace of rate cuts. Even so, the budget is still very and so will not deter further easing by the Bank. Overall, the budget is an effort to emphasise Labour's balanced approach to growth and fiscal stability, aimed at restoring market confidence and economic resilience. However, the initial reaction in the gilt market was not positive and the pound rose on tempered interest rate cut speculation.
A strategic shift in the government's borrowing target from public sector net borrowing (PSNB) to public sector net financial liabilities (PSNFL) will incorporate a broader asset base than previously, reducing the borrowing figure. This change is expected to ease government efforts to achieve fiscal targets, offering more flexibility within the public finances framework.
A noteworthy change is the increase in the Energy Profits Levy on oil and gas firms to 38 percent, extended until 2030. Introduced in 2022, this levy aims to capture windfall profits, with Reeves ensuring industry stability through retained first-year allowances and a decarbonisation incentive.
With these fiscal moves, the Office for Budget Responsibility revised GDP growth forecasts to 1.1 percent for 2024 and 2 percent for 2025, up from earlier predictions. However, budget measures may marginally elevate inflation, potentially slowing the Bank of England's pace of rate cuts. Even so, the budget is still very and so will not deter further easing by the Bank. Overall, the budget is an effort to emphasise Labour's balanced approach to growth and fiscal stability, aimed at restoring market confidence and economic resilience. However, the initial reaction in the gilt market was not positive and the pound rose on tempered interest rate cut speculation.
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.
