UK budget - is that it?

Move along, nothing to see here (again). The noise around the UK budget dwarfs the tiny economic signal finally revealed by today's prematurely-published Office for Budget Responsibility report, subsequently presented to Parliament by the Chancellor. After all that fuss, the kite-flying, the leaks and reversed leaks, the bottom line is indeed a 'smorgasbord', but one of largely offsetting changes to spending and revenue plans which will not move the macro dial.

The growth-inflation mix is forecast to worsen slightly from here relative to the March outlook. The widely-anticipated underlying productivity downgrade has modestly reduced each annual growth estimate from next year onwards, while inflation is expected to return to target in 2027, a year later than earlier anticipated. However, the level of real GDP is at least expected to be roughly unchanged at the end of the forecast period, due to a revision to prior years' levels.

Meanwhile, the projected fiscal shortfall was smaller than had been so extensively 'reported' beforehand, and the fiscal tightening the Chancellor felt the need to announce in order to (more than – see below) meet her fiscal rules was not big enough to have a material effect on the economic and investment outlook.

Voters will face higher taxes, with the better-off and older possibly hit hardest, and a pre-election promise has been broken; but public spending plans are raised too, muting the net impact, while politicians' promises are broken often.

Indeed, until 2027/28 the net effect will be slightly stimulatory (averaging ¼% of GDP across the next three years), as higher welfare and capital spending by government, frozen fuel duties, business rates reliefs and other items more than offset revenue-raising measures. Thereafter the budget does become restrictive, as the freezes to personal tax thresholds, and NICs on salary-sacrificed pensions contributions, make themselves felt, but by only around ¾% of GDP in 2030-31.

In absolute terms, the eventual tightening in 2029/30 does amount to roughly £20bn, one of the many numbers trailed beforehand. However, rather than this being devoted to plugging an alleged, newly-discovered 'black hole' in the accounts, half of it is being earmarked for a small reduction in borrowing – in the jargon, to create bigger 'headroom'.

There are many, many small changes in the budget, and (as usual) hundreds of pages of supporting documentation showing exactly how many angels might dance on the head of a pin in four years' time in this hugely over-analysed and much-maligned economy. Earlier this year the German government presented plans to boost its spending cumulatively by a fifth of GDP in coming years, with perhaps a side of A4 by way of explanation. Just saying.

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Past performance is not a guide to future performance and nothing in this article constitutes advice. Although the information and data herein are obtained from sources believed to be reliable, no representation or warranty, expressed or implied, is or will be made and, save in the case of fraud, no responsibility or liability is or will be accepted by Rothschild & Co Wealth Management UK Limited as to or in relation to the fairness, accuracy or completeness of this document or the information forming the basis of this document or for any reliance placed on this document by any person whatsoever. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, targets, estimates or forecasts contained in this document. Furthermore, all opinions and data used in this document are subject to change without prior notice.

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