UK Finance Minister John Healey Presents Cautious 2024 Budget and Market Response
Overview and Market Reaction to the 2024 UK Budget
LONDON, Oct 29 (Reuters) - British finance minister John Healey announced a cautious budget plan on Wednesday, in which he unveiled a raft of support measures for households and businesses, while trying to avoid piling more pressure from the bond market on the government of Prime Minister Andy Burnham.
Healey said the headroom - the amount of extra spending or tax cuts the government can make under its own fiscal rules - stood at £15 billion ($19.93 billion), in line with expectations from a Reuters poll, but below the £23.6 billion in March.
Britain's 10-year government bond yield was down 2 basis points on the day at 5.323%, while the 30-year yield was down 3 bps at 5.711%, as prices rose.
Sterling was down 0.1% to $1.3298 after earlier hitting a 1-1/2 week low. It fell just 0.1% against the euro at 83.72 pence.
The blue-chip FTSE 100 index was up 0.1%, broadly in line with gains in other major European stock markets. The FTSE 250, which generates a greater proportion of its revenue domestically, was up 0.4%.
Bank shares rose after a smaller-than-feared tax hike on their profits. Shares in Lloyds, Barclays and NatWest were up between 3.3% and 3.6%.
Expert and Market Commentaries
General Market Sentiment
COMMENTS:
Ben Jones, Global Head of Research, Invesco, UK
"After two blockbuster, tax-hiking budgets, investors will welcome this more ‘steady as she goes’ package from the new Labour Chancellor. Against a backdrop of rising gilt yields and geopolitical uncertainty, Healey’s decision to limit spending increases and tax rises shows sensible caution. However, many of the difficult fiscal choices - such as delivering welfare savings and boosting Defence spending - have been postponed until the Spending Review next year."
Rory McPherson, Chief Market Strategist, Wren Sterling, UK
"It was a reassuringly dull budget from a market perspective."
"There were no big upsets. We have had the currency and bonds hold steady. At the margins, two-year yields rose a bit but that was in anticipation of a BoE (Bank of England) rate hike next week."
"We have had bank stocks move a bit higher on the surcharge rise being less than expected."
Dani Stoilova, UK Economist, BNP Paribas, London
"We think the projected headroom of £15bn in 2029/30 was the minimum amount likely acceptable to the market given consensus expectations of a £15-20bn. However, the signal that policy remains on a tightening trajectory, with borrowing on course to fall and headroom build, we think is encouraging."
"The government has opted to defer significant, more contentious decisions (e.g. defence spending, welfare reforms) to future fiscal events, perhaps even to the next parliament. This means some uncertainty about the medium-term outlook for policy lingers, despite today’s announcements."
"The Budget has not altered our outlook for the UK economy."
Currency and Fiscal Policy Analysis
Piotr Matys, Senior FX Analyst, InTouch Capital Markets
"(Healey's) intention seems to be to provide UK households and corporates with plenty of reassurance that they can rely on fiscal support from the government, but without stretching even more public finances at the time when borrowing costs are rising globally amid persistently high energy prices which are fuelling inflationary pressures that requires many central banks to raise interest rates, including the BoE."
Lael Akoner, Global Market Strategist, eToro, London
"The £100 energy payment, extended electricity VAT relief and fuel-duty support should leave households with more money after bills. But breathing space is not the same as permanently cheaper living. The support is temporary, while frozen income-tax thresholds take a bigger share of rising wages."
"The warning is the cut in next year’s growth forecast from 1.6% to 1%. That makes delivery essential. The £20.4 billion investment programme needs to attract private capital and justify additional borrowing."
Kathleen Brooks, Research Director, XTB, UK
"It was meant to be a steady-as-you-go budget. The bond market is calling it a very boring budget - yields are a couple of basis points lower at the long end and virtually unchanged elsewhere. So nothing that's going to change the fiscal picture for the UK significantly.
"Even though we're borrowing more nominally, it's not having an impact on markets and it's not a worry for investors. The reason why is because the government is capitalising on the better growth forecasts. So that actually means that debt as a percentage of GDP can still fall over the next five years, rather than just increase borrowing and see the borrowing rates and rates go up. The fact that the bond market hasn't moved on the back of this suggests that this budget does not change the fiscal picture for the UK.
"There's not a huge amount of detail which suggests to me that he's wanting to wait for the spending review next year or even for an election in the coming months."
Foreign Exchange and International Perspective
Jane Foley, Head of FX Strategy, Rabobank, London
"Right now, the budget hasn’t meant an awful lot for the pound."
"The silver lining of the (2022 Liz)Truss budget is it has created an environment where politicians don’t want to create any rucus for the market.
"That’s what we’ve had, a very much a nothing-to-see here budget, which hasn’t been a big focus of markets."
Kirstine Kundby-Nielsen, Senior Analyst, Danske Bank, Copenhagen
"It looks marginally better than expected. They are taking a bit of a hit on the headroom, growth forecasts are revised downward and inflation revised upwards. It looks fairly balanced.
"Markets are sending the pound slightly stronger and gilts are outperforming a little bit. It's a bit of risk premium being priced out of the curve as the lack of something bad is removed."
Andrew Wishart, Senior UK Economist, Berenberg, UK
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