The Weekly Briefing from Capital Economics UK Budget: The Missing Growth Story | China: The Investment Mystery
Nov 27, 2025
Paul Dales, Chief UK Economist, shares insights on the UK Budget's mixed reception, discussing the limited growth strategy and the potential role of AI in boosting productivity. Ruth Gregory, Deputy Chief UK Economist, highlights the looming political risks that might impact fiscal credibility and gilt markets. Meanwhile, Leah Fahy, China Economist, tackles the decline in fixed-asset investment, suggesting it's more about successful policy than just economic downturns, backed by alternative activity measures showing resilience in industrial performance.
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Gilt Rally Reflects Relief Not Full Confidence
- The gilt rally mainly reflects relief that the Budget was less bad than feared rather than full market confidence in the government.
- The OBR's generous forecast and reduced long-dated gilt supply helped calm investors in the near term.
Budget Buys Time But Political Risk Lingers
- The Budget placates restless Labour MPs and boosts the Chancellor's short-term position but political risks remain ahead of local elections.
- A change at the top could quickly trigger renewed gilt market volatility, as seen in July's sterling sell-off risks.
Growth Plan Exists But Policies Work Against It
- The government has a clear growth-by-investment strategy but is failing to deliver on homebuilding and public projects.
- Some policies, like past business tax rises and cuts to saving incentives, actively undermine private investment and savings.