UK Budget Less Damaging, But Still Not Good News: Chatham Financial's Jackie Bowie

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00:00There's just really a little bit of relief in the financial markets.

00:04There was so much leakage and speculation in the weeks running up to the budget.

00:08Also her impromptu speech that she made a few weeks ago,

00:12trying to prepare the markets for those income tax rises,

00:16which of course didn't come through.

00:18And then of course the erroneous release of the OBR report,

00:21you know, 40 minutes before she stood up in the Commons,

00:24which did obviously impact volatility in the market.

00:27So when the message was actually delivered,

00:28it was a little bit of relief that it wasn't quite as awful

00:32as maybe it had been predicted and speculated before.

00:36But, you know, as she said in her interview,

00:38I mean, all these tax rises, they're just pushed further down the road.

00:42So I don't see the fiscal position being any better than it was before she stood up.

00:49And the thing is, this budget is being labelled a spend now tax later budget

00:53because of the backloading of the tax rises.

00:56I mean, is there a chance that they don't actually follow through on those tax rises

00:59because they're getting closer and closer at that point to the next election?

01:05Yeah, that's always the challenge when you're pushing that and fixing the fiscal position so far away

01:11and it starts to get closer to when there might be another government in power.

01:15And the other thing, of course, is between now and then, lots of things can change.

01:21I mean, she mentioned about interest rates and inflation.

01:24We have another Bank of England meeting before the end of the year

01:27and she seems to be banking on the Bank of England continuing to cut interest rates

01:32because inflation is continuing to come down.

01:34And I don't think you can 100% bet that that will actually happen.

01:39The December rate cut looks to be in the bag,

01:42but whether the Bank of England will continue to cut interest rates next year

01:45is still quite a big question mark.

01:48So when you think about all of those other variables and things that might change,

01:52I suspect there will be further changes to the growth and inflation forecast.

01:56And then, to your point, whether those tax changes will actually come through

02:00as she set out yesterday is also a question mark.

02:05Yeah. That headroom number, which is the number that many market participants

02:11were watching out for, did come as an upward surprise.

02:13I think people were sort of penciling in about 15 billion.

02:16Instead, she came out with 22 billion pounds worth of fiscal headroom.

02:20Do you think that, again, in the short run, going back to what I was saying at the beginning,

02:24that will be enough to satisfy GILD investors?

02:27Well, you know, as we say, it's only a forecast, right?

02:32It's not in the bag and it hangs on lots of other things coming through between now and then.

02:38And again, it's not, you know, managing to these fiscal rules just feels like engineering for an outcome.

02:45She said herself in her own interview when everyone wants to focus on the growth

02:50and what the government are doing to drive growth, and I don't think they answered that question.

02:54I mean, a few of the interesting things that came out in the budget around, you know,

03:00the changes to the cash ISA allowance and also the changes to salary sacrifice for people saving for pensions.

03:07You cannot get growth in an economy without investment, and you cannot get investment without savings.

03:13And the UK is actually quite a low kind of savings rate relative to other countries.

03:17And yet the decisions that she took in the announcement she made are curtailing savings,

03:23so actually curtailing investment and potentially future growth too.

03:26Yeah, looking at those OBR forecasts, which, as you say, you know, there's a bit of a whole drama with that

03:34because they leaked them too early, but the growth forecasts were not very helpful.

03:38They lowered their forecast for 2026 to 1.4 percent from 1.9 percent

03:43and then lowered the medium-term productivity number, which, again, was going to be a big sign for the market as well.

03:50Well, the Chancellor seems to think that she can beat those forecasts.

03:54She said that to our colleague Lizzie Burden.

03:57Where will the upside to growth come from?

04:01Yeah, I mean, that productivity downgrade was a real big hit, and we've talked about it for a long time.

04:08The UK has a productivity issue.

04:10It's just even worse than we thought it was.

04:13Where the Chancellor thinks she's getting the growth from is on those supply-side changes.

04:18You know, she's talked about their planning changes.

04:21She's talked about some of the trade deals.

04:23But actually, they're not really moving the needle that much.

04:26I think we need to focus on the number of people in the UK who are economically inactive.

04:32So, you know, they're out of work, but they're not actively looking for work.

04:36And then just the general productivity of the people who are in work, particularly in the public sector.

04:41So, all the productivity growth really comes from the private sector and the public sector less so.

04:47She did make a little nod to that when she talked about some of the efficiency gains that she's trying to focus on in the public sector.

04:54But again, these are tiny, tiny movements.

04:58They're really not enough to dramatically change the growth picture for the UK.

05:01So, let's see.

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