Autumn Budget poses key macro risks, says SJP chief economist

With markets alert to fiscal signals, St. James’s Place Chief Economist, Hetal Mehta, sets out her expectations ahead of the Autumn Budget, assessing the macro and market implications for investment managers.

Hetal Mehta, Chief Economist at St. James’s Place, said: “With just a few days to go until the Budget, the key question is whether the policy dilemmas facing the Chancellor will finally be resolved. Support the economy or balance the books? Break manifesto pledges or break fiscal rules? Keep markets onside or keep voters happy?

“The economic picture heading into the Budget is mixed: GDP growth has been lacklustre, though broadly in line with the OBR’s expectations back in March. Inflation has remained elevated, but not as high as the Bank of England had feared. Meanwhile, the labour market continues to soften, with unemployment rising to 5% in Q3 and wage pressures easing.

“One of the critical variables is productivity. The UK has lagged behind peers for many years, and previous overly optimistic assumptions are set to be revised down – widening the fiscal gap further.

“In addition, higher borrowing costs, reduced welfare savings, and the introduction of new employment rights could all add to the shortfall. To restore the fiscal headroom of £9.9bn seen at the time of the Spring Statement would require tax rises or spending cuts of £20–30bn – more if the Chancellor wants a larger buffer for future Budgets.

“The UK tax burden, already on track to reach around 38% -the highest on record – could climb even higher. No easy fiscal choices remain. This Budget will demand a delicate balancing act, with direct implications for households, markets, and many of our clients.”