New fiscal rules create room for looser policy in the UK

The broad shape of the UK Budget was largely as expected, but the scale of the increases in current spending, capital spending, and taxation were larger than we had anticipated. Fiscal policy will be tightened over the next five years by less than the previous government planned.

What you will learn:

• Changes to the fiscal rules are a positive step in terms of encouraging investment, and in our view could have a bigger impact on potential output than the Office for Budget Responsibility estimates. But the new investment plans are still low by international standards.
• The OBR thinks the measures will offer a solid boost to real GDP growth in the near-term. But we think the impact will be smaller, given how public sector output is measured and that some of the spending increase will fund higher wage settlements.
• On current spending, the new plans look more credible. But the small margin for error against the borrowing rule leaves the government at risk of needing to increase taxes again in the future.

Don’t miss our UK Budget reaction webinar tomorrow, (1 November). Register here