The UK’s Finance Minister, Jeremy Hunt, has unveiled a series of measures aimed at revitalizing the economy without causing disruptions in the financial markets. Hunt announced a £21 billion stimulus package, emphasizing its collaboration with the Bank of England (BoE) to achieve the 2% inflation target by 2025, as projected by the Office for Budget Responsibility (OBR).
Key elements of the growth strategy include an annual £10 billion reduction in national insurance, decreasing the rate by 2 points from 12%.
Chancellor Jeremy Hunt’s speech led to a slight depreciation of the pound against the dollar, dropping from $1.254 to $1.246. Simultaneously, the yield on ten-year gilts experienced fluctuations, initially decreasing from 4.11% before the Autumn Statement to 4.05% during the statement and eventually surging to 4.16% by its conclusion.
This move has raised concerns about potential inflationary pressures, possibly prompting the Bank of England to maintain interest rates at elevated levels. The announcement resulted in a rise in British bond yields, as investors responded to a smaller-than-expected cut to gilt issuance plans.
Economists suggest that the overall package may contribute marginally to inflation, providing a rationale for sustaining high-interest rates. While market expectations indicate potential interest rate cuts in mid-2024, BOE’s Andrew Bailey has emphasized that it is premature to consider reductions, given the upward risks to inflation.