In Labour’s first Budget since 2010, Chancellor of the Exchequer Rachel Reeves unveiled what the Office for Budget Responsibility described as “a large, sustained increase in spending, taxation, and borrowing”, including £40 billion-worth of higher taxes alongside increased investment in health, education, defence, housing, and infrastructure.
- Rachel Reeves delivered a controversial Budget
- The rate of inflation fell to its lowest level since April 2021
- The IMF upgraded its 2024 UK growth forecast
Autumn Budget: in Labour’s first Budget since 2010, Chancellor of the Exchequer Rachel Reeves unveiled what the Office for Budget Responsibility (OBR) described as “a large, sustained increase in spending, taxation, and borrowing”, including £40 billion-worth of higher taxes alongside increased investment1 in health, education, defence, housing, and infrastructure. The rate of employers’ national insurance contributions was increased from 13.8% to 15%; meanwhile, the lower rate of capital gains tax was raised from 10% to 18%, and the higher rate was raised from 20% to 24%. Inherited pension pots will be liable to IHT from April 2027. Income tax thresholds will remain frozen until 2028-29.
“Concerns over geopolitical risks have reached record levels among UK market participants”
Budget reaction: the OBR warned that the Budget represented "one of the largest fiscal loosenings of any fiscal event in recent decades". As investors digested the Budget’s potential impact, the yield on the UK benchmark gilt rose to a 12-month high, the pound weakened against the US dollar, and sentiment towards medium-sized and smaller companies waned. Over October as a whole, the FTSE 100 Index fell by 1.5%, while the FTSE 250 Index declined by 3.2%.
Inflation eases: the annualised rate of consumer price inflation moderated from 2.2% to 1.7% during September, reaching its lowest level since April 2021. In an interview with The Guardian, Bank of England (BoE) Governor Andrew Bailey suggested that the central bank could be a “bit more aggressive” in cutting interest rates. Elsewhere, according to a survey undertaken by the BoE, concerns over geopolitical risks have reached record levels among UK market participants, with 93% identifying geopolitics as the principal threat to the UK financial system.
UK growth set to pick up? The International Monetary Fund expects economic growth in the UK to “accelerate,” raising its forecast for 2024 from 0.7% to 1.1% as lower inflation and interest rates “stimulate domestic demand”. The UK economy grew by 0.2% during August following no growth in July or June. Growth was boosted by output in the manufacturing and construction sectors.
Dividend growth falls: according to Computershare’s Quarterly Dividend Monitor, headline dividends from UK listed companies fell by 8.1% to £25.6 billion during the third quarter, dampened by cuts in the mining sector, a strong pound, and lower one-off special dividends. On an underlying basis, dividends fell by 3.5% to £25.3 billion.
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