We’ve seen a relatively orderly reaction in gilts and the pound to the details of the budget so far. Market participants will be breathing a sigh of relief that the Chancellor appears to have learnt from past mistakes, and will instead be affording herself a larger fiscal headroom in excess of £20 billion, as opposed to the razor-thin one we saw last year.
In theory, this should lower the likelihood that the government will need to return to the tax well again down the road, albeit with the caveat that market participants will first need to assess whether or not this fiscal restraint can go hand in hand with robust economic growth. That won’t be easy given the sheer scale of tax increases now barrelling towards Britain’s economy.
