UK Chancellor of the Exchequer Jeremy Hunt delivered an Autumn budget statement today at 11:30 am GMT in the UK House of Commons. Hunt said that the plan is aimed at shallowing economic downturn and lowering energy costs as well as other cost of living. He said that the UK government must work alongside the Bank of England, rather than against it. This was a reference to Liz Truss' economic plan, which featured unfunded spending and tax cuts.
New economic forecast for 2022 was better than the previous one. UK GDP is expected to grow 4.2% this year, up from 3.8% in the previous forecast. However, GDP is expected to contract 1.4% in 2023, down from a 1.8% growth in previous forecast. Borrowing is also expected to drop by a halve over the next five years. Hunt mentioned a fiscal rule that will require debt to drop by the fifth year of a five year rolling period. Net UK debt is expected to peak in the 2025-2026 period at 97.6% GDP. Budget deficit is seen at 177 billion GBP in 2022-2023 and at 140 billion GBP in 2023-2024 budget. Public spending will grow but will grow at a slower pace than economic growth in the coming years. Defense spending will remain unchanged at 2% GDP.
Hunt announced planned tax increases. Starting with personal taxes, threshold for the 45% income tax rate will be lowered from 150 thousand GBP to 125.14 thousand GBP. Allowance on tax-free dividend income was cut from 2,000 GBP to 1,000 GBP. Allowance on dividends will be cut further to 500 GBP in April 2024. Also as electric vehicles are expected to account for a higher share of cars in UK, EVs will no longer be exempt from excise duty and will be taxed starting from 2025.
When it comes to business-level taxes, Hunt said that windfall tax will be increased from 25 to 35%. Also windfall tax will no longer only apply to energy generators but will also be extended onto oil and gas companies. However, Hunt stressed that windfall tax should be temporary as permanent tax would deter investments. Windfall tax on oil and gas companies is expected to remain in place at 35% until 2028.
GBPUSD dropped during Hunt's statement but has since regained some ground. UK bonds also traded lower. There were not any major changes to the BoE rate hike pricing with the market still seeing BoE terminal rate at around 4.5% in mid-2023.
GBPUSD dropped during Hunt's statement but has since regained a big part of losses. Source: xStation5
