Morning Brief – The Hunt is on: UK Budget and the Global Population

The Hunt is on: UK Budget and the Global Population

The Autumn budget is drawing closer with Jeremy Hunt, Chancellor of the Exchequer within Rishi Sunak’s government, due to announce the measures to the House of Commons on Thursday. Sterling had a rocky start to the week yesterday with major crosses falling as the trading session matured. One of the catalysts for such a move has undeniably been the risk investors perceive Thursday’s budget to pose to GBP. Following the Sterling-destroying mini-budget, GBP still has the crosshairs focussed upon it. Should the Chancellor fail to hit the right tone on Thursday, UK public finances could be brought into question once again damaging GBP.

Today the global population will change over a big figure. As of today, there will be 8 billion people on this planet. This data comes with a stark reminder of the changing demography of the population worldwide and here in the UK too. Slowing birth rates have created an aging population with the average age of many nations, not least the UK, grinding ever higher. This is expected to create increasing pressures upon the economy as to how the working age population will fund an increasing state pension and health care demand. This is a natural evolution of a developed economy but one that will bring distinct challenges. This data confirming the rollover of big figure in population has come at a poignant time for GBP. Whilst this data won’t have any impact on Sterling it is partially the concerns over the expense of financing state pensions, benefits and healthcare that are increasing Hunt’s challenges on Thursday.

Once of the catalysts for a weaker Pound yesterday were comments made by PM Rishi Sunak on the way to the COP27 meeting. When asked about the triple lock on pensions the new leader of the Conservative Party replied that his time as Chancellor should serve to demonstrate his commitment and care for pensioners in the UK. This created expectations that the Chancellor could be seeking to stick to the triple lock which would see the nominal value of the state pension rise by over 10% next fiscal year. This creates an even larger burden on the taxation side of the budget with Sterling taking a downturn as investors scratch their head as to how this spending increase can be accommodated without raising borrowing requirements.

There has been increased speculation over a rise in the windfall tax on Energy producers with a surplus and punitive tax suggested for excessive revenues and costs per kWh. The Chancellor is also expected to write down the cost of the consumer and business energy protection packages with the current cap on prices suggested to expire in six months only. On Thursday markets will be weighing up the costs to future growth versus the risk to current borrowing costs and economic stability as to how Sterling will be priced.

Discussion and Analysis by Charles Porter

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