Tax hikes blur UK's Sunak ‘whatever it takes’ budget

LONDON: Finance minister Rishi Sunak announced a costly extension of his emergency aid programmes to see Britain's economy through its current coronavirus lockdown, but announced a tax hike for many businesses as he began to focus on fixing the public finances.

Following are comments from market analysts:

ED MOYA, MARKET ANALYST, OANDA, NEW YORK

"Following Brexit, some investors that were betting on UK assets hoped Britain would become a low-tax, lightly regulated economy, Singapore-on-Thames.

The corporate tax increase in 2023 will derail some of those expectations. The UK economy is expected to have explosive growth in 2022, but then quickly return to trend in 2023 at 1.7%, which is when the economy will face higher taxes."

SIMON HARVEY, SENIOR FX MARKET ANALYST, MONEX, LONDON

"The positive impact the spending pledges has on growth has been somewhat offset by concerns of fiscal consolidation later down the line.

While we didn't expect Chancellor Sunak to drop the fiscal anchor at today's budget given the fluid nature of the economic recovery at present, the rise in the projected deficit from £164bn to £234bn has stoked the bond market's concerns over the financing of this debt at a time when yields are rising.

"Today's budget hinted at the consolidation efforts expected in the near future, likely in the Autumn budget, with the highly talked about corporation tax increase in April 2023 to 25% being announced - this is earlier and larger than most expected."

VALENTIN MARINOV, HEAD OF G10 FX RESEARCH AT CREDIT AGRICOLE, LONDON

"Chancellor Sunak confirmed earlier reports that the government will start introducing some fiscal austerity measures in an attempt to boost the UK fiscal outlook.

The UK is thus to become the first major economy to consider such measures.

While this is a commendable policy if you are a rating agency, for the FX markets this could mean a potential downside risk to growth in H2 2021 and especially in 2022.

Indeed, a premature withdrawal of the fiscal support for the economy could slow down and even derail the recovery at a time when post-Brexit uncertainty lingers and thus clouds the outlook for the services sector of the economy.

To the extent that this also makes the BoE more cautious and thus more willing to push against any further tightening of the UK financial conditions, it could also hurt the GBP."

VIVEK PAUL, UK CHIEF INVESTMENT STRATEGIST, BLACKROCK INVESTMENT INSTITUTE, LONDON

"Though continued support remains the right policy prescription for now, the Government also signalled some measures to deal with the sharp rise in debt resulting from its pandemic relief.

That said, this doesn't herald a return of the austerity seen after the global financial crisis, in our view.

Low interest rates are providing fiscal breathing room by keeping debt servicing costs low - for now. But the UK has less room for manoeuvre than other Western economies."

RACHEL WINTER, ASSOCIATE INVESTMENT DIRECTOR AT KILLIK & CO, LONDON

"Markets reacted positively to the plans to extend support for individuals and businesses, with sterling strengthening marginally during the early part of the speech.

The key UK indices remained in positive territory despite the announced increase to UK corporation tax.

Banking shares are up today, reflecting the Office for Budget Responsibility's upgraded forecasts for the UK economy.

Housebuilders are among the biggest gainers on the market, as they stand to benefit from the extension to the stamp duty holiday."