Growth focus – the budget was firmly focused on accelerating growth, with increased spend on both current items and investment.
Tax rises – employers’ national insurance contributes £25bn of the £41.5bn increase. The changes in CGT and carry were largely as expected with inheritance tax changes to AIM shares not as bad as feared.
Sector views – in this note, our research team has assessed the impact of the changes across the sectors.
Increased visibility – the long run up to the budget resulted in considerable uncertainty over policy changes. Focus should now turn to the improving growth profile in the UK and the undervaluation of UK assets.
Tax increases not as bad as feared. Labour chancellor Rachel Reeves announced plans for a sizeable fiscal expansion worth some £70bn annually, with two-thirds of the rise going towards current spending and one-third going towards capital spending. Half of the increase in spending is coming from higher taxes and half from higher borrowing. Most tax increases were in line or lower than feared, while markets seem to have reacted well to the plan to finance a sizeable increase in public investment with debt.
Modestly expansionary. While an even higher tax burden could weigh on parts of the private sector, planned rises in government spending offsets and a debt-financed investment increase should result, on balance, in a modest tailwind for the UK economic expansion over the medium term.
Outlook unchanged. As we had already factored in fiscal stimulus into our above-consensus projections, we keep our UK economic calls unchanged. We continue to look for annual real GDP growth to pick up from 1.0% in 2024 to 1.7% in 2025 and 1.9% in 2026. We expect today's announcement to contribute to upward revisions to consensus numbers. Ahead of the budget, Bloomberg consensus projected growth of 1.0%, 1.3% and 1.5% in 2024, 2025 and 2026, respectively.
To request the full note, email [email protected].