UK Budget delays tax hikes but difficult questions unanswered
Today’s UK Budget put-off difficult tax increases until late-on in the life of the parliament. The plan to gradually reduce public sector borrowing to 1.9% of GDP by 2029/30 still relies on relatively optimistic assumptions on UK GDP growth and that the Labour government sticks to spending restraint in the run-up to the next general election. Remarkably, the Budget represents a net loosening of fiscal policy in 2026 & 27, additional expenditure offsetting muted tax rises. This is positive for UK GDP growth next year, but leaves many difficult questions on fiscal sustainability unanswered. Hence, UK gilt yields, swap rates, expectations for official Bank of England rates and sterling have shown a muted reaction to today’s announcements.
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