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UK to announce budget after political chaos and market turmoil

Barclays: Government’s commitment to fiscal sustainability in doubt if measures ‘backloaded’

Barclays expects an austere budget from Finance Minister Jeremy Hunt, but suggested the government could face questions over its commitment to fiscal sustainability if a substantial portion of the new measures are “backloaded.”

“To maintain credibility with investors, in our view, the government will focus on the size of fiscal tightening. However, the composition and timing of fiscal tightening will matter too,” said Barclays Chief European Economist Silvia Ardagna.

“Near term, we expect the largest fraction of fiscal adjustment to be achieved via tax increases. We think spending cuts will be mainly budgeted for after the 2024 general election. As such, the delivery of these spending cuts remains uncertain.”

– Elliot Smith

Barclays Private Bank sees £30 billion tax rises and public spending cuts

Barclays Private Bank said Wednesday that it is taking a “pessimistic view” of the U.K.’s growth prospects, citing “wilting economic data, political turmoil and policy confusion.”

“The government’s mini-budget in September sent a shockwave through U.K. assets, as investors questioned the sustainability of the nation’s finances,” said Henk Potts, EMEA market strategist at Barclays Private Bank.

“Additional pressure on the U.K.’s fiscal position has been created by the deteriorating growth profile, rapid rise in interest rates, and higher cost of servicing inflation-linked debt.”

In order for the government to restore fiscal sustainability and return the deficit to between 1% and 2% of GDP, Potts estimated that additional tax increases or public spending cuts totaling around £30 billion ($35.6 billion) will be required.

“Given the multitude of pressures on the UK economy, we think that a deeper and more prolonged recession is inevitable,” Potts added.

“We expect that the economy will register five consecutive quarters of negative growth, starting in the third quarter of 2022.”

– Elliot Smith

‘Everything that can be taxed will be taxed,’ fund manager says

Asked about the prospect of further windfall taxes on energy companies amid soaring commodity prices, Daniel Avigad, partner and portfolio manager at Lansdowne Partners, told CNBC on Wednesday that “everything that can be taxed, will be taxed.”

“That applies not just to oil and gas, but to all aspects of the economy, given that governments have major deficits to fund in terms of primary resources and self-sufficiency, and as a consequence will try to raise capital from whatever sources they can find,” Avigad said.

Lansdowne Partners: Earnings trajectories for stock markets overestimated by up to 20%

UK inflation hits 41-year high of 11.1% as food and energy prices continue to soar

U.K. inflation jumped to a 41-year high of 11.1% in October, exceeding expectations as food, transport and energy prices continued to squeeze households and businesses.

“Indicative modelled consumer price inflation estimates suggest that the CPI rate would have last been higher in October 1981, where the estimate for the annual inflation rate was 11.2%,” the Office for National Statistics said.

On a monthly basis, the CPI rose 2% in October, matching the annual CPI inflation rate between July 2020 and 2021.

Read the full story here.

– Elliot Smith

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