Difficult to interpret the market reaction at this point - ironically for Truss, the same underlying misgiving is there. She wanted to cut taxes and cut spending, Labour is increasing spending (+62 billion borrowing) and increasing taxes. In both cases, the currency and yield indicators aren’t doing what they usually do (move together). Pound is down, yield is up.
The good news for the government is the magnitude of the signal is nowhere near what Truss managed to produce. This is unease, not panic. If the pound rallies or even just stabilizes tomorrow, it will be a sign that the market is ‘wait and see’ mode to see what happens with economic growth.
In your opinion, ignoring the ins and outs of the Budget, do you think that the markets reaction is influenced by the confidence of the various sectors/public in the PM/Chancellor/government delivering it?
It always is. In this case, I would say the uncertainty is not directed toward the Government per se (the way it definitely was with Truss), but focused on the fundamental viability of the spending. With Truss’ plan, the concern was that the UK would end up with a crapload of debt that would largely fly away. With this plan, the concern about the debt is there, but so is the recognition that a lot of the spending is going to be staying in the UK. However, some of what Truss (and many others) are saying about some things become more costly for the private sector are undoubtedly true and will undoubtedly result in a corresponding fall in demand from the private sector. The uncertainty is what that tradeoff ratio is actually going to be. Many observers are really dumbfounded by the UK’s current configuration of a fairly large slice of GDP being run through government, yet badly weakened public services. There are lots of anecdotal accounts, but the reality is no one really understands why, or even if there is a single ‘Why?’. So Labour might have set the UK on a path to real growth and improving productivity, or saddled an already struggling economy with more costs and a larger debt.
If you believe the first scenario, probably a solid time to buy UK bonds.
My best friend has a Ferrari, so even better. I could just spend the money I saved on not buying a Ferrari and borrowing his, on another 30mil pints and have saved enough money to buy another Ferrari, where I would again just borrow his.
Man, I am gonna be permanently drunk, and never own a Ferrari. I wish all budgets were like this.
Quote of the day from a range of people asked for their opinions on yesterdays budget. “There are fewer babies being born and right now there aren’t any incentives to have kids."
What fucking planet do these people live on? There are people freezing in their homes, skipping meals to feed their kids, one bad day from destitution, and they are moaning that they’ll be able to pass slightly less of their vast wealth to their kids?
If businesses decide to reduce pay increases that’s their decision. Always has been so no change. Market will always drive someone’s value anyway.
However, the public sector is almost shielded from this. When was the last time that we saw public sector pay increase at a higher rate than the pricate sector which is potentially what might happen?
We might not yet see that happen, at least not across the board. Budgets are still going to be under lots of pressures to deliver services especially across future years, where funding may not keep up.
The employer still pays NI for public sector workers. Effectively this is reducing the budget of all government departments. I think the Scottish government have already raised this with Westminster.
