All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group
CommentLeader

Delaying fiscal plan carries risks for UK

RETRANSMITTING CORRECTING POSITION OF HUNT Prime Minister Rishi Sunak (centre), alongside the Chancellor of the Exchequer, Jeremy Hunt (centre right), holds his first Cabinet meeting in Downing street. Picture date: Wednesday October 26, 2022.

The Bank of England is hiking blind in a blizzard after the Treasury’s autumn statement delay

Newly appointed UK prime minister Rishi Sunak and his chancellor, Jeremy Hunt, this week delayed their medium-term fiscal statement — the follow up to last month’s disastrous mini-budget — by 18 days to November 17, upgrading it to a full autumn statement.

The new date now comes two weeks after the Bank of England meets for the penultimate time this year to set interest rates. As a result, the Bank will now go into this meeting unaware of what the pair have in store for the UK’s finances.

Of course, a large part of this has already been unveiled, with Hunt’s first action as chancellor being the mopping up the mess his predecessor, Kwasi Kwarteng, made, rolling back tax cuts and attempting to restore faith in the UK’s fiscal management skills.

After this U-turn, the market cut its sterling base rate expectations, with many now anticipating a 75bp rise instead of a full percentage point. But even a ‘lower’ increase would still be the Bank of England’s largest jump in more than 30 years, with Black Wednesday — when the UK crashed out of the Europe’s Exchange Rate Mechanism in 1992 — the last time it moved the needle this far, albeit temporarily.

The Bank of England is set to go into this meeting with only slim guidance from the government, but it will have to decide how high it will take its policy rate without having seen the numbers behind the upcoming statement.

Both Hunt and Sunak have stressed that “difficult decisions” must be made — even the Tories’ beloved commitment to increasing pensions is in question, something Sunak previously vowed to protect.

However, two weeks is a long time for this Tory government — the last one lasted only 45 days. What is pitched as policy now could easily be off the table by the time November 17 comes around.

Of course, the market must be grateful that Sunak and Hunt have decided not to rush — especially after the last chancellor’s attempt at pushing through a fiscal plan without pausing to do his sums. At least this time the statement should be paired with a report from the Office for Budget Responsibility.

Sunak arguably did the right thing in retaining Hunt as chancellor and allowing him to continue the 11 days of work he had already put in undoing his predecessor’s mess. But delaying the statement means the UK and its financial markets have a while to go before they can breathe more easily.