Quick View: What do the UK Budget measures mean for investors?

After weeks of speculation and headlines, the UK government has finally delivered their delayed Budget. This will remove much of the uncertainty that has been affecting businesses and consumers alike, with recent confidence subdued. Indeed, companies such as ITV, housebuilders Taylor Wimpey and Persimmon, and various retailers have all cited Budget uncertainty as a key factor impacting recent trading conditions.

As investors we were looking for three criteria from the Budget:

1. Non-inflationary – giving the Bank of England scope to continue to cut interest rates as required to support the economy
2. Non-discriminatory – to ensure that not too much of the tax burden fell on certain subsets of individuals / businesses
3. Fiscally credible – providing a larger buffer against the promise to fund day-to-day government spending by 2029-2030 from tax receipts, with higher taxes not back-loaded towards the end of the five -year period (2030)

It is therefore a relief to see that the Chancellor has largely delivered on these elements with a positive reaction from both the bond and equity markets at the time of writing. The government has given itself a larger buffer against its self-imposed fiscal target and the measures announced do not seem to contain any significant inflationary policies, keeping the door open for further Bank of England rate cuts.

That said, it may take some time for individuals, company management and investors to digest the full impact of all the decisions taken and what it ultimately means for the outlook for economic growth and inflation. Importantly, UK economic growth for 2025 has been upgraded by the Office for Budget Responsibility (OBR) to 1.5% from 1.0%. And despite all the budget uncertainty, the UK equity market has still performed strongly this year with the FTSE All-Share up almost 20% ². Hopefully, investors can now once again focus on fundamentals and the attractive stock valuations available in the UK market.

Andrew Jones:

There were no big negative surprises, given some of the tax increases already rumoured, and both bonds and equity markets have initially taken a positive view. The Chancellor has seemingly walked the narrow path of raising taxes in a non-inflationary way, thereby creating room for the Bank of England to cut interest rates further; created a larger fiscal buffer to remain within her fiscal rules over the forecast period; and increased spending in some select areas.

James Briggs:

If not doing much can be considered a success, then the UK Chancellor of the Exchequer Rachel Reeves may take some comfort from the fact that 2-year, 10-year and 30-year gilt yields did not rise; in fact, they had fallen slightly on the day by 2pm.³ Contributing to outperformance on the day from longer-dated gilts may have been the release around the same time of revised Debt Management Office figures showing a continued skew away from longer-dated issuance.

 

Much like the Budget contents, which were released early, increased spending is front-loaded, with some of the bigger tax raising elements kicking in later. Regardless, Reeves buys the government £22 billion in headroom against major shocks, although still slim when the Office for Budget Responsibility estimates a 1% rise in gilt yields or Bank Rate could unwind £16 billion.¹ It is a budget that relies on economic growth, and with productivity having been lowered, the Chancellor will hope her tax tinkering does not stymie growth.

 

Corporate borrowers may take some solace from the fact that revenue raising exercises are more evenly spread and fall less on employers compared to the last Budget. The real win for corporate borrowers will be if this Budget convinces the market that the government has a grip on debt given that stable or lower gilt yields will do more than anything to help reduce financing costs.