Well the mini-budget was certainly a fiscal\nevent. You have probably been inundated with commentary, but we will attempt to\nsummarise it for you.
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\nGlobally a shift is taking place as we transition from an era of disinflation\nto a world of inflation and therefore higher interest rates. At the same time\nthe picture is complicated by supply chains being modified to compensate for\ngeopolitical challenges. Central banks only really have one weapon and that is\nraising rates to remove liquidity from the markets.
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\nThe government wants to stimulate growth. It has already announced the Energy\nPrice Guarantee (EPG), capping the unit price for households and the Energy\nBill Relief Scheme for non-domestic energy customers.
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\nIt is also trying to put more money in our back pockets with the following:
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However, the Chancellor did not handle the announcements well. He started by dismissing the Permanent Secretary to the Treasury. The Office of Tax Simplification will be closed. He also did not ask the Office of Budget Responsibility (OBR) to review the announcements (therefore it is not really a budget) and then announced that there were \u2018more cuts to come\u2019.
The markets did not like the uncertainty and promptly sold Sterling and increased the cost of government borrowing by selling UK government bonds (gilts). \u00a0This then affected the defined benefit pension industry as the cost of liability matching pensions using derivatives increased. The pension industry then needed to increase the amount of capital (margin) to pay for the increase. This created a vicious recursive circle. The Bank of England (BoE) then stepped in to prop up the gilts market.
Going forward, the BoE only increased the bank rate by 0.5% to 2.25% on 22 September 2022. The next meetings are on 3 November and 15 December. There is a high probability that rates will go up on both dates. This will of course affect mortgage rates and if you are worried give Alastair a call in the office.
It looks like the Chancellor will be trying to balance the books. Simon Clarke, the new levelling up secretary has written to Whitehall departments asking them to \u2018trim the fat\u2019 and tackle the \u2018very large welfare state\u2019.
The Government\u2019s strategy seems to be based on \u2018Reaganomics\u2019 from the 1980s. There will be more volatility in the markets for the foreseeable future; however this is normal market mechanics adjusting to the new regime. We are coming into the Q3 earning season but our companies will be able to pass through the increase in input costs from the energy rises feeding inflation price rises.
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Well the mini-budget was certainly a fiscal event. You have probably been inundated with commentary, but we will attempt to summarise it for you. Globally a shift is taking place as we transition from an era of disinflation to a world of inflation and therefore higher interest rates. At the same time the picture is … <\/p>\n