The Rest Is Money 204. Will The Late Late Budget Heal Or Harm?
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Sep 3, 2025 Anticipation builds as the UK braces for a pivotal budget announcement, with rising government borrowing costs stirring debate. The hosts dissect the potential consequences of significant tax hikes and the role of the Bank of England amid political pressures. They highlight how uncertainties in taxation may stifle business growth and investment. With eyes on the fiscal landscape, the conversation reveals the delicate interplay between economic stability and government policy, questioning whether the forthcoming budget will heal or exacerbate current challenges.
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Markets Are Penalising UK Borrowing
- Rising long-term gilt yields show markets have lost confidence in UK fiscal stewardship.
- Every 0.5% rise in average borrowing costs costs the government about £6bn a year.
Slim Fiscal Headroom Was A Gamble
- Rachel Reeves left very little fiscal headroom after last year's budget, making her finances vulnerable.
- A £9bn cushion was small by modern standards and turned fiscal management into a risky gamble.
BoE Mandate Limits Market Support Options
- The Bank of England's mandate to target 2% inflation limits its ability to support gilt markets.
- Any perceived bailout of the government by easing QT would risk the Bank's independence and spike yields further.