The Office for Budget Responsibility (OBR) dropped an unprecedented clanger yesterday, mistakenly releasing its fiscal forecast before Rachel Reeves had stood up to deliver the autumn Budget in the Commons. The OBR would later apologies for a breach that took markets by surprise and left MPs passing notes along the benches.
Remarkably, that was the bumpiest things got across Wednesday. The chancellor’s announcements arrived as advertised, offering a smorgasbord of tax rises that sought to rebuild the slender fiscal headroom and chip away at the cost of living. A freeze on income tax thresholds, tweaks to pension contribution schemes and a new “mansion tax” took the tax burden to 38% of GDP – a record high.
Despite the false start, news that the fiscal buffer would reach a more typical level by the end of this parliament helped smooth things over for the pound. Sterling recovered from a minor wobble to post a positive day against a basket of its rival currencies.
Bond markets – which hold the key in determining the government’s borrowing costs – were almost as twitchy-fingered as the OBR. 30-year gilt yields shot up to almost 5.4% around Midday before settling closer to 5.2%. Reeves and her team will likely view this reaction as a massive tick given scrutiny around the public finances.
So, that was the reaction. But what would the Budget mean for the economy? As expected, the OBR revised its medium-term productivity growth forecast down from 1.3% to 1% and 2026 full-year GDP forecast down from 1.9% to 1.4%. At the same time, the OBR’s growth forecast for this year was boosted from 1% to 1.5%.
Away from the UK, today is a key day in the Ukraine war, with officials in Kyiv indicating they would agree to President Trump’s peace plan following a round of significant changes. Trump has set a deadline of today for settling the conflict, although there still appear to be sizeable differences between Ukraine and Russia’s demands.
And finally, there’s a simple explanation for wonky US tech valuations, according to the European Central Bank (ECB). Fear of missing out (or FOMO to those versed in such things) has driven investors to pile into AI stocks like Nvidia, Open AI and Alphabet.
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