ANALYSIS: UK pre-election Budget delivers a NI sweetener & front-runs Labour measures; slightly larger Gilt remit than expected with the headroom near a record low

Analysis details (14:15)

• Overall, Chancellor Hunt has left the UK with around GBP 8.9bln of fiscal headroom, which is near a record low, and described by the OBR as “historically modest”. Gilts were initially lifted on the Chancellor announcing that the OBR had headline debt falling every year for the forecasts (note, debt-to-GDP is actually incrementally higher at the end of the forecast period). Thereafter, the slightly larger than expected Gilt remit, GBP 265.3bln (vs exp. 258.4bln, and a prev. 237bln) sparked some modest pressure in Gilts, which fell from 99.00 to 98.75. Though this proved short-lived, with Gilts settling above the 99.00 mark as the dust settles.


• From a policy perspective, most of the measures announced by the Chancellor were as expected, including levies on vaping, business class flights and the replacement of the non-domiciled scheme among other tweaks. The most pertinent measure was the National Insurance cut of 2ppts (follows an equal cut in the Autumn Statement) at a projected cost of GBP 9bln. Interestingly – and contrasting with some pre-budget sources – Income Tax was not altered, disappointing those looking for a 1ppts cut; such a reduction would have cost around 6bln, and may well have weighed on Gilts. Instead of an Income Tax adjustment, Hunt lifted the child benefit threshold, and kept the Government Spending Assumption at a 1.0% real-term increase.


• From a political perspective, the alterations to the Energy Profit Levy and non-domiciled status are policies that the Labour party were expected to want to implement, assuming they win the H2-2024 election. The Conservatives announcing these mean that the Labour party will need to either abolish a tax-cutting measure (something they have previously indicated they would not do), walk back on spending commitments or tweak their own fiscal plans in order to deliver a prudent/affordable budget.


• As a side note, there has been some speculation that the Conservatives could announce a May 2024 election, once the National Insurance cuts come into effect at the start of April, though nothing concrete on this has yet been announced. Reminder, the long-held expectation has been for a H2-2024 election, likely mid-November.

06 Mar 2024 - 14:15- Fixed IncomeResearch Sheet- Source: Newsquawk