More fiscal U-turns reassure UK markets, but at a price

The new UK Chancellor’s decision to reverse almost all September’s mini-Budget tax cuts plus action to limit the cost of the cap on energy bills appear to have calmed markets. Gilt yields are down and sterling is stronger. Calmer markets and tighter fiscal policy should mean the BoE will face less pressure to raise interest rates aggressively.

What you will learn:

• But positives for the economic outlook will be offset by the extra pressure on households from higher taxes and less generous energy subsidies, as well as the likely demise of the government’s supply-side agenda to boost GDP growth.
• We still expect the economy to shrink over the next year, but the risk of a more severe downturn driven by slumping market confidence has been reduced. Still, the high chances that the current prime minister isn’t long for her job means political turmoil may soon return.