UK: Budget will highlight the coming fiscal drag – BTMU

FXStreet (Barcelona) – The UK Budget today won’t pout any major surprises but will highlight that there remains plenty of fiscal consolidation ahead for the government to reach its budget deficit goal, according to Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ.

Key Quotes

“Today, Chancellor Osborne will present the first Conservative-only UK budget since the final budget during the John Major government in 1996. The speculation in Westminster, reported by the BBC, is that the government has decided to soften the profile of spending cuts which the government has been criticised over. Initially, budget cuts were planned to be extreme in 2016-17 and 2017-18 but this was smoothed out by the government implementing more cuts this fiscal year. Today, the profile may be softened further but the ultimate goal will remain – eliminating the cyclically-adjusted budget deficit by March 2018.”

“The good news for the Chancellor is that tax revenues have exceeded forecasts in the first two months of this fiscal year and the borrowing estimate for the current fiscal year – GBP 75bn – may be reduced. Much of the political fallout for the government is set to come from the details on how the reduce the welfare bill by GBP 12bn – a figure we already know but the details we do not. With those details being presented, we are unlikely to get any surprise cut to the top tax rate of 45%. The main piece of good news will be for homeowners with the current inheritance threshold being raised to GBP 500,000 (or GBP 1mn per couple) on primary residences.”

“All in all, we do not see any major surprises in today’s budget that will move the market. The days of budget surprises seem to be behind us with media briefings ensuring a drip-feed of information on the budget is released ahead of the event. However, the budget may serve as a reminder that there remains plenty of fiscal consolidation ahead in order for the government to reach its budget deficit goal and is a key reason why the markets remain cautious on the pace of BOE tightening.”

The UK Budget today won’t pout any major surprises but will highlight that there remains plenty of fiscal consolidation ahead for the government to reach its budget deficit goal, according to Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ.

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