Heads up: UK autumn budget puts Healey to the test as gilt markets await fiscal reassurance

<p class="text-align-justify" style="text-align: justify;">UK chancellor Healey has a rather unenviable task at hand today. He is expected to deliver a budget that keeps households happy, businesses afloat, and bond investors calm. All while trying to convince everyone that the government isn't running short of money. Well, good luck with that.</p><p class="text-align-justify" style="text-align: justify;">It is definitely quite the juggling act for his first autumn budget. And with borrowing costs still elevated and fiscal headroom shrinking, there's not exactly much room for him to get creative.</p><p class="text-align-justify" style="text-align: justify;">So, what goodies can Healey realistically pull out of the bag today? And perhaps more importantly for markets, it is the question of who's going to end up paying for them?</p><p class="text-align-justify" style="text-align: justify;">Here are some of the key measures to watch out for:</p><ul><li class="text-align-justify" style="text-align: justify;">Bank tax hike: A potential reversal of the bank surcharge cut from 8% to 3%, which could raise over £2 billion annually</li><li class="text-align-justify" style="text-align: justify;">Online marketplace taxes: Requiring platforms like Amazon and eBay to collect VAT from more UK sellers, potentially raising £1 billion to fund business rates relief for smaller shops</li><li class="text-align-justify" style="text-align: justify;">Energy bill relief: Over £1 billion in support for poorer households, including a possible £100 increase to the existing £150 Warm Home Discount</li><li class="text-align-justify" style="text-align: justify;">Fuel duty freeze: Another extension looks likely, although that could cost the Treasury up to £2.7 billion annually</li><li class="text-align-justify" style="text-align: justify;">Housing support: A proposed 20% equity loan for first-time buyers purchasing new-build homes, requiring deposits of just 2.5%</li></ul><p class="text-align-justify" style="text-align: justify;">Now, that is quite the shopping list for someone with limited fiscal room to work with.</p><p class="text-align-justify" style="text-align: justify;">The government's <a href="https://investinglive.com/news/uk-autumn-budget-preview-can-healey-calm-markets-and-change-boe-rate-hike-bets/" rel="follow">already strained fiscal position</a> isn't helping with the situation, with its fiscal headroom potentially being halved from £24 billion to around £12 billion amid rising borrowing costs. So, that just means gilt traders will have plenty to scrutinise today.</p><p class="text-align-justify" style="text-align: justify;">Besides that, the OBR forecasts and borrowing projections could arguably matter more than the spending headlines. A more credible fiscal plan could offer some relief to gilt yields, particularly at the long-end of the curve. However, any suggestion of unfunded spending will only risk another bond market tantrum and that won't be a pleasant sight.</p><p class="text-align-justify" style="text-align: justify;">As we look to the budget announcement later (expected at 1230 GMT), do keep a watchful eye on how the energy relief measures might influence inflation expectations and in turn BOE rate hike pricing.</p><p class="text-align-justify" style="text-align: justify;">For Healey himself, I reckon a boring budget might actually be a win for his political standing. But whether or not markets agree is a whole other matter.</p><p class="text-align-justify" style="text-align: justify;"></p>
This article was written by Justin Low at investinglive.com.