Breathing space?

Good afternoon. This is your midday market update from City AM.

John Healey said his debut Budget was about giving the British people some “breathing space”. To make sure no one missed the memo, he mentioned the expression no less than thirteen times during his House of Commons speech.

But no matter how often Healey says it, projections from the Office for Budget Responsibility (OBR) suggest times are about to get tougher for the average Brit, not easier.

The clearest indication of this lies in the outlook for wage growth. In March, the fiscal watchdog predicted that average real earnings would grow by a pedestrian 0.4 per cent. It has now downgraded that significantly, to a contraction of 0.1 per cent, and says we will not have wage growth again until 2029.

In other words, many Brits are going to feel even more squeezed over the coming months. Another OBR forecast, on declining disposable incomes, tells the same story.

The top-line growth outlook for the UK paints a similarly bleak picture. 

In March the OBR said Britain’s economy would grow by 1.6 per cent in 2027. That has now been revised down sharply to just one per cent – a downgrade that would hardly put wind in the sails of any near-term general election campaign.

It would be uncharitable to lay all of these difficulties at Healey’s door. The single-biggest driver to the OBR’s downgrades has been the war in Iran, which has sent energy prices skyrocketing, pushing up inflation and making many Brits feel that bit poorer.

In a nod to this, Healey yesterday unveiled an energy support package alongside a bank tax hike – giving households extra cash to cover their gas bills and forcing banks to pick up the tab.

But the efficacy of the move has already been called into question. The Resolution Foundation has today warned that the support package is “badly targeted.”

It will mean that the poorest half of households who stand to benefit will gain £158 – which is only £14 more than that received by the richest half, the think tank points out.

“Rather than give large numbers of richer households support, it would have been better to help half as many poorer households twice as much,” the group said.

“That the government still has no mechanism available to reach more households than the welfare system can, without spreading money so thinly that few notice, is a damning failure of state capacity today.”

While the Chancellor unveiled a long list of Budget measures – as many as 98 separate announcements – few wrestled with the structural challenges facing fiscal policy.  

There was no serious effort, for example, to simplify our ever-expanding tax rulebook or deal with its unintended consequences, such as the 60 per cent tax trap for higher earners.

Instead we were left with an amuse bouche Budget: lots of little morsels to pick at, but nothing that hits the spot.

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