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

GBP 1.3bn is the estimated impact of Chancellor Healey’s United Kingdom (UK) Budget on the public finances. Deutsche Bank’s Chief UK Economist Sanjay Raja assesses the package as broadly fiscally neutral. It curbs tax increases while raising investment and alleviating cost-of-living pressures. With borrowing forecast to prove persistent and run slightly above earlier projections, a sizeable fiscal shortfall and tough consolidation decisions lie ahead.

Fiscal Neutrality, Mounting 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. Know more.)