UK government borrowing costs fall as City welcomes ‘no harm’ budget – business live
UK borrowing costs eased and the stock market rose after Chancellor John Healey's budget, which was seen as cautious. Shell reported doubled profits.
Intelligence analysis by Gemini 2.5 Flash Lite
Chancellor John Healey's maiden budget, featuring a £4.4bn cost of living package and tax increases, was met with a muted market reaction. While borrowing costs fell and the FTSE 100 rose, the Resolution Foundation criticized the support package as "badly targeted."
Imagine the government is like a parent managing a household budget. This parent just announced some new rules for spending and saving. Some people think the new rules for helping families with high bills are not fair, as they don't help the families who need it most. But the big companies, like an oil company, are making a lot more money, which is good for them.
Analysis
Healey's Budget
Chancellor John Healey's first budget, delivered amidst global economic turbulence, has been characterized by a cautious approach to fiscal policy. The package, which includes a £4.4bn cost of living support measure and various tax increases on sectors like banking, gambling, and landlords, has largely been met with a sense of relief by financial markets. The City appears to have welcomed the absence of significant negative surprises, with borrowing costs for the UK government easing and the FTSE 100 index showing gains. This muted, yet positive, market reaction suggests that Healey's strategy of gradual fiscal tightening and adherence to pre-announced expectations has successfully avoided spooking gilt markets, a feat not always achieved by his predecessors.
Resolution Foundation
The Resolution Foundation, a prominent economic thinktank, has offered a critical assessment of the government's cost of living support package, deeming it "badly targeted." This criticism highlights a potential disconnect between the government's stated aims of alleviating household financial pressures and the actual impact of the measures. The thinktank's view suggests that the £4.4bn allocated may not be reaching those most in need or that the mechanisms for distribution are inefficient. This raises questions about the efficacy of the government's welfare spending plans, particularly as Chancellor Healey has also vowed to cut the welfare bill before the next election, indicating a potentially tougher stance on support for young people not engaged in employment or training.
Shell Profits
In contrast to the cautious fiscal outlook, energy giant Shell reported a significant surge in profits, doubling to $10.8bn in the latest quarter. This substantial increase is attributed, in part, to the ongoing conflict in Iran, which has driven up oil profit margins. Shell's strong performance stands out against the backdrop of broader economic concerns and the government's efforts to manage fiscal pressures. The company's business rate measures, which include a two-year freeze, have been welcomed by Premier Inn owner Whitbread as a mitigation of damage to the hospitality sector from previous budgets. However, for smaller businesses, the relief is seen as insufficient, with some owners arguing that additional labour costs continue to burden already struggling enterprises.
Key points
- UK government borrowing costs and the pound remained steady following Chancellor John Healey's maiden budget.
- The FTSE 100 index rose, with Shell reporting a doubling of profits to $10.8bn.
- The Resolution Foundation criticized the £4.4bn cost of living support package as 'badly targeted'.
- Business rate measures, including a two-year freeze, were welcomed by some hospitality firms.
- Chancellor Healey plans to cut the welfare bill and adopt a 'tough' approach to young people not seeking work or training.
The cautious approach to the budget may help stabilize government borrowing costs and maintain investor confidence, potentially leading to lower gilt yields over the coming year. Businesses, particularly in the hospitality sector, may benefit from the freeze on business rates, mitigating some of the financial pressures they face.
The criticism from the Resolution Foundation suggests the cost of living support package may be ineffective, failing to adequately assist households most in need. Continued economic uncertainty and potential further tax increases could still strain businesses and individuals.
