UK Budget Preview

• The first Labour Budget in 15 years looks hugely significant for the UK economy’s medium-term outlook. The new government is looking to balance its core messages of stability and higher investment in a tight fiscal environment. That necessitates a creative approach.  
• The broad story is likely to be some near-term fiscal consolidation through a range of tax rises which is offset by some more expansionary long-term capex. To do this the government is set to tweak the current fiscal rules to carve out more space for investment, but we expect officials will be mindful of rising borrowing costs and will resist the temptation to use up any extra headroom in its entirety.
• In terms of the broader growth outlook, the government’s messaging around “painful” measures is unsurprisingly now weighing on sentiment indicators. The UK economy’s fundamentals remain in reasonable shape, however, and we expect the steady expansion will continue once noise around the Budget fades.

To read the report, please download the PDF (link above)