MNI BRIEF: UK Budget Set To Be Fiscal Easing, Hamper Rate Cuts
MNI (LONDON) - The UK Budget, set to be unveiled on Oct 30, will be a net fiscal giveaway with policy looser than in the Spring Budget and it will entail that the Bank of England will not cut interest rates as quickly, according to analysis by the Resolution Foundation (RF) think-tank.
RF said the Budget, the new Labour Government's first, would see fiscal easing because the previous plans set out by the former Conservative government for spending constraints were exceptionally tight and Labour would not achieve them.
Using OBR and BOE ready reckoners, an extra GBP10 billion of current spending and GBP30 billion of investment spending in the Budget would push up inflation by 0.6 percentage points and require the BOE to leave its policy rate one percentage point higher than it otherwise would have done to fully offset the effect, according to RF.