- UK growth has slowed in the summer months, after a strong recovery in the first half of 2024.
- Corporate optimism and risk appetite remain at above average levels, despite waning after a post-election bounce.
- The Bank of England cut interest rates to 4.75% this month, the second reduction in 2024.
- Inflation is slightly above the Bank of England’s 2% target, with the Bank expecting inflation to remain at a similar level moving into 2025.
- The new Labour government set out its economic agenda for this parliament in the Autumn Budget.
- It announced plans to raise public spending by roughly £70bn annually, funded through greater borrowing and by the largest post-election tax rise in over 30 years, largely shouldered by corporates.
- The Office for Budget Responsibility (OBR) expects this additional spending to boost short-term growth, making the UK the fastest growing G7 economy in 2025.
- The Bank of England also judges the Budget as inflationary; this is in line with investors, who are pricing in a slower reduction in interest rates as a result.
- The NHS is set to receive the bulk of the increased spending but many ‘unprotected’ departments still face real-term cuts in expenditure.
- Despite higher taxes, government debt will remain at a high level throughout the parliament.
- The OBR estimates very limited headroom for the government to meet its new fiscal rules; an economic shock or even a modest revision to growth forecasts could see them breached.
- Timing: The Chancellor has announced that an Economic and Fiscal Forecast will be published on 26 March 2025. The Chancellor intends to respond to the forecast with a parliamentary statement.
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