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Rathbones’ Smith: Johnson wrote the numbers, Sunak wrote the speech

Commenting on the Autumn Budget, Ed Smith, Co-CIO at Rathbones, says despite some unanticipated give-aways, fiscal policy is tightening dramatically. Political confusion and economic uncertainty further cloud the outlook.

Politically, this was a very confusing Budget. A Chancellor, who recently told his party’s conference that government borrowing was immoral, boasted to Parliament about record increases in government spending, which weren’t actually record-breaking in any meaningful sense, before delivering passionate concluding words that emphasised the need to ratchet down spending at some point in the near future. Perhaps Prime Minster Boris Johnson decided the numbers, while Rishi Sunak wrote the speech.

Whether the rhetoric makes sense is usually neither here nor there to us. As investors, all we care about is whether the economic impact is likely to cause the UK economy to deviate from the path it was already on, and whether any specific policies will alter the outlook for financial assets. But political confusion does mean that we have less certainty that the policy projections set out this week won’t be altered substantially in 2022 or 2023.

For now, to assess the impact of what we have been told, it’s worth starting with an attempt to answer some preliminary questions about the UK economy. Because, undoubtedly, the recovery has entered a more challenging phase.

In the attached paper we look at the following key areas:

  • Is the recovery secure and are there still long-term economic risks from the pandemic?
  • What are the risks of runaway inflation, and what is the outlook for monetary policy?
  • Don’t forget about Brexit
  • Summing up the Treasury’s new policy
  • Are UK public finances sustainable?
  • Combatting climate change and other long term issues
  • Business related policies and investment implications

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