It’s been hard to keep up with the twists and turns of sterling over the past 24 hours. Yesterday was a game of two halves as the markets changed their mind around midday, and after early falls the pound strengthened. Then overnight it’s been a change of direction again, as the news came through that the chancellor has ditched her plans to raise income tax.
Yesterday’s early disappointment stemmed from the fall in the size of the UK economy in September. Gross domestic product (GDP) fell by 0.1%, taking the quarterly figure down to 0.2% growth. This could largely be blamed on a cyberattack on Jaguar Landrover that cost the UK economy some £2bn, but was another blow to the chancellor, with some analysts and opposition blaming the faltering economy on mistakes in her first Budget.
This morning’s news that the chancellor is changing tack on the Budget in 12 days appears to be a response to mutinous Labour MPs. The thinking may be that if she feels the need to resign having broken a clear manifesto promise, the prime minister might have to go too. Now, according to the Financial Times, the fiscal ‘black hole’ will be filled via fiscal drag (i.e. not raising tax thresholds) and a smorgasbord of taxes on gambling, expensive properties and others.
On GDP, the thinktank the Resolution Foundation pointed out that the quarterly 0.2% growth still left it the second-fastest growing economy in the G7. Another drag on the UK economy was falling exports to the USA, which were at their lowest since 2022 due to the effect of tariffs.
The British housing market continues to suffer, with the RICS UK Residential Market Survey showing an increasing number of chartered surveyors noting house price falls. This is most notable in London and South East, where the impact of a likely new taxes on expensive properties will also be most felt.
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