Chancellor Jeremy Hunt had a difficult task to provide near-term support for the economy while reassuring markets that the government is in safer hands than with his predecessor.
The Autumn Statement was relatively bleak. Tax thresholds were cut or frozen, formerly promised tax cuts were scrapped and austerity was back on the table for the first time in years. Having covered the main talking points earlier, here Trustnet looks at the reactions from experts.
‘An emergency Budget for emergency times’
The government’s tax increases and spending cuts were the largest in almost a decade, according to George Lagarias, chief economist at Mazars, who said that it had “deliberately prioritised alleviating market pressures and putting the brakes on debt, over lightening the burden on consumers”.
“In reality, the chancellor was left with little choice in the matter. Attempting to expand fiscal spending for a second time could result in severe market distress, and, ultimately, much higher burdens in the immediate future,” he added.
Lagarias likened it to an “emergency Budget” that was called for during these “emergency times” in which inflation is “rampant” and could lead to a third of markets falling into recession next year.
‘The mini-Budget has been thrown to the wolves’
Former prime minister Liz Truss and ex-chancellor Kwasi Kwarteng’s mini-Budget was almost entirely redacted in the latest Autumn Statement, with Tim Bennett, head of education at Killik & Co, noting that their “ill-fated” policies had been “well and truly thrown to the wolves”.
“Sunak and Hunt have put fiscal discipline front and centre with an announcement which combines an aggressive tax raid with spending cuts. As such, it’s an ‘all on red’ attempt to put the UK onto a post-pandemic path of prudence and living within its means but at the potential cost of a protracted recession,” he said.
‘The chancellor has extended the chill by prolonging freezes’
Les Cameron, head of technical at M&G Wealth, said that, with all key rate allowances frozen or cut in the Autumn Statement, people will no doubt be concerned by the cost-of-living crisis, while the slashing of dividend and capital gains tax allowances in particular made it a “statement for tax wrappers”.
The two should combine over the coming years to be “quite a drag on overall return,” he warned, making ISAs and pensions the “go-to place for investors to shelter their income”.
“Many people will already be using these allowances and for those who do, investment bond wrappers should become more popular. Investment bonds are subject to the special life assurance corporation tax regime, which has much lower tax rates for many who would otherwise be holding the investments directly,” said Cameron.
‘The Autumn Statement has painted a bleak picture for the UK’
Marcus Brookes, chief investment officer at Quilter Investors, said we have come a long way since the mini-Budget, with the latest speech from the new Conservative chancellor attempting to plug a £54bn black hole with a mixture of spending cuts and tax rises.
“Today’s Autumn Statement has painted a bleak picture for the UK. The OBR has produced a glib outlook for a UK economy that is already in recession and has forecast peak inflation in 2022 with slow moderation going forward. It is, however, a lagging indicator and the economy will continue to slow in 2023,” he said.
‘The UK is poised for a longer recession than the US or Europe’
Despite the latest moves, which have rebuilt credibility and pushed the costs past the next election date, the UK is poised for a longer recession than the US or euro area, according to Vivek Paul, UK chief investment strategist at the BlackRock Investment Institute.
“For years to come, the Treasury will be wary of the bond vigilantes that hastened the demise of Truss and Kwarteng. Term premium – the compensation investors demand for holding longer-maturity bonds – is likely to return over the coming years, with the next general election a potential catalyst if markets believe that today’s backloaded cuts will ultimately not be delivered or are not replaced with a credible alternative plan,” he said.
Paul argued that he would “steer clear” of UK gilts and said that the forthcoming recession makes it “tough to make a strong case for UK stock markets”.