UK Budget - first impressions
The new UK administration's first budget is sub-titled "a breathing space for today" – and that may be what it has brought the government. A blizzard of small measures, each inconsequential in the macro context, add up to a people-pleasing package that might extrapolate the government's current poll lead towards an early election.
The budget will likely have only a minimal impact on most client portfolios (which of course have a large international content to begin with). In no single year does the overall net fiscal impulse – in either direction – add up to much more than a quarter of one percent of GDP.
Economic and interest rate forecasts will be unmoved, as (largely) were sterling, gilts and most UK stocks on the day (even bank stocks, which face an extended Corporation Tax Surcharge, barely budged). UK budgets have long since been a largely political and media confection, and this was no exception.
Nonetheless, it is noteworthy for a couple of reasons.
Taking the positive first: the OBR agrees with us that the UK's fiscal accounts are not in an especially precarious position. There never was a "black hole" needing urgently to be filled: as even the IMF has recently realised, both UK borrowing and debt can follow plausibly favourable glide paths from here – particularly by comparison with those seemingly being traced by some of the UK's peers.
Net debt is projected to peak at 97% in 2028/9 – little changed from recent OBR projections, but materially lower than was projected (for example) in the aftermath of the pandemic. The UK's net debt ratio tends to be a couple of percentage points lower than that of the US, and around fifteen points lower than France's (not that we are especially worried for them on that account, as we note elsewhere).
Less positively, the budget is perhaps another illustration of the new Prime Minister's sentimentalism, and his susceptibility to what we might think of as "fridge magnet politics". Lots of eye-catching policies are being thrown together with little thought as to the overall impression – or indeed, whether there is room for them on the fridge door. The government's net footprint – that traced by the deficit and debt, the product of the evolving gap between revenues and spending – is manageable.
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