United Kingdom: Neutral Budget leaves fiscal risks unresolved - Deutsche Bank

Investment support and relief from cost-of-living pressures feature in Chancellor Healey’s United Kingdom (UK) Budget, while tax rises are limited. Deutsche Bank’s Chief UK Economist Sanjay Raja assesses the package as broadly neutral for the public finances, estimating its impact at GBP 1.3bn. With borrowing forecast to remain stubbornly high and slightly above earlier projections, a substantial fiscal gap remains, pointing to tough choices on consolidation ahead.

Can a neutral fiscal stance contain rising risks?

"The policy package introduced in the Budget is estimated to have a broadly neutral impact (GBP 1.3bn). But this wasn’t a dull Budget by any means."

"The Chancellor’s mantra heading into the Autumn Budget was to ‘do no harm’, and we think the Chancellor successfully met this objective. The biggest spending spree came via investment."

"To be sure, the tax burden remains on course to hit new post-war highs. Altogether, policy measures are projected to reduce borrowing by around GBP 10bn by the end of the forecast horizon."

"Indeed, public sector net borrowing is expected to stay sticky at 4.2% of GDP this fiscal year and is expected to fall to 3.4% of GDP. The medium-term outlook has borrowing sticking nearly 0.2pp above the Spring Statement projections with borrowing landing at 1.8% of GDP by 2031/32."

"Put simply, there will be a near GBP 25-40bn fiscal hole to fill in the new year. Questions around the backloaded nature of the projected fiscal consolidation will also raise concerns around the credibility of projected fiscal tightening."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)