Tax Rises & Spending Cuts Seen As Increasingly Likely In Oct Budget-Guardian

As noted in earlier coverage (see 'GILTS: Futures Back above 100.00, News Flow Points To Tough Budget', 0830BST) there are growing expectations that the upcoming 30 October budget statement will deliver tax hikes and spending cuts. The Guardian reported on the evening of 20 Aug that the hard measures could come "...amid Treasury alarm that the pickup in the economy has failed to improve the poor state of the public finances. The chancellor is insisting she will still have a substantial black hole to fill despite stronger than expected growth in the first half of 2024."

• Higher public sector borrowing than expected will add further credence to these expectations
• Politically, the first budget after a change in gov't is usually utilised by the new administration to deliver the toughest economic measures regarding tax increases and spending cuts. This is because the gov't can blame the previous incumbents for leaving a poor fiscal situation and there is a long period until the next election.
• The summer has seen relatively little opinion polling, but approval ratings for PM Sir Keir Starmer have suffered amid a period of rioting across UK towns and cities. Before the riots, Starmer's net approval stood at an average of +11.6, but this has now fallen to -6.6 in the aftermath.
• A belt-tightening budget could put further pressure on gov't support levels. However, given Labour's sizeable Commons majority, this is unlikely to cause any significant concern for Downing St at this time.