Over to the Old Lady of Threadneedle St

After yesterday’s autumn statement, the next move belongs to the Bank of England to decide if these plans are inflationary and another rate hike is needed, or if they are happy to conclude these are not inflationary, as will be hoped by those in Downing St.
 
George Lagarias, Chief Economist at Mazars said:
 
“Ahead of an election year, the Chancellor gave back all his windfall from lower borrowing than anticipated. News about a £4.5bn investment in manufacturing, the extension of the business rate discount for some industries and the permanence of full expensing will certainly be welcome by both domestic and international investors. The reforms could increase capital spending in the UK. The cut in National Insurance for certain categories will certainly benefit many consumers, as will the increase in benefits by 6.7% and the triple lock going up by 8.5%.

Having said that, from a wider economic perspective, the outlook remains troubling. Tax cuts have been more than offset by the cut in GDP projections for the next couple of years. As a result, the aggregate tax burden is still projected to reach 37.7% of GDP by 2028, the highest in 70 years. Meanwhile, tax cuts for consumers and a high triple lock and benefits number may contribute to higher inflation pressures.

The next move belongs to the Bank of England which now has to decide: are the Chancellor’s claims that tax cuts are not inflationary true, or does the Bank need to offset these with an unexpected rate hike?”