UK Borrowingโ Costs rise, Stocks Dip Amidst Budget Uncertainty
Concernsโค are โคmounting over the UK’s fiscal outlook as speculation intensifies ahead of the Autumn Budget on november 26th.โค Borrowing costsโฃ have risen,and stocks have experienced a downturn asโค investors react too the potential forโข tax increases to address a ยฃ30 billion ($39.5 billion) โshortfall in the government’s โขbudget.
The โinitial plan for a 2pโ reduction in National Insurance, intended to impact passive income streams, isโ now facing scrutiny. Experts suggest the budget โฃgap may be โfilled through a series of smaller tax increases.
This approach could trigger a “fiscal reckoning,” according to โคRory McPherson, investmentโ chief at Wren Sterling. speaking on โฃCNBC’s “Squawk โBox europe” on Friday, โMcPherson warned that targetingโข smaller taxes, as proposed by Rachel Reeves, would likely increase โคpressure onโข theโค government to borrow more money,โ subsequently pushing up yields. He noted a recent “big marchโ down” in yields is now โฃbeing โreversed.
Currently, long-term borrowing costs in โคthe UK areโข at their highest level as the late 1990s, and the nation’s debt carries the highestโ price tag within the G7.
Toni โขMeadows, head of investment atโข BRIโค Wealth Management, described the government as being “betweenโ a rockโข and a hard place with regard to this budget.” She highlighted that inherited fiscal issues were exacerbated by public sector pay awards, and โthat any solution will likely be โขunpopular. “How can thisโฃ statement together promote growth whilst having to โcutโข spending and increase the tax burden to keep bond investors happy?” she questioned,โ also pointing to the pressure from outstanding debt and service costs.
Meadows addedโ thatโ the uncertainty surrounding the budget details is โcurrently more damaging than the โคpotential outcomes, emphasizing the need for detailed plans to allow investors to move beyond speculation.
Julianโ Howard, chief multi-asset investment strategist atโ GAMโ Investments, suggested โpotential measuresโ could include “onerous restrictions” on pension savings, isas, an expatriation exit charge, and changesโฃ to capital gains and council tax.
McPherson of Wren Sterling โbelieves the Bank of England willโ still retain the ability to cut interest rates after the budget, should itโฃ choose to do so. However, investor optimism regarding rate cutsโ has diminished,โ with bets โขsheddingโค six basis points compared toโ Thursday, according to โLSEG โdata.
Howard concluded that while the Chancellor will likely implement measures to address theโฃ immediate problem, the broader challenge may be one of maintaining overall economic credibility.
-โ CNBC’s Chloe Taylor and Sam Meredith contributed toโฃ this โreport.
