"For the Government, September's figures have not improved the fiscal arithmetic - while gilts sit at one of their lowest levels this year, persistent high inflation will continue to unsettle the financial markets and keep the cost of servicing the national debt high. Although the IMF's latest World Economic Outlook reports that UK's inflationary pressures are largely "temporary," with the labour market expected to loosen and wage growth to slow, the current trajectory of inflation is unlikely to calm the markets."
"With the Budget just over a month away, the Chancellor faces a classic economic trade-off question - how can she stimulate growth without reigniting inflation? Given this tough dilemma, it is likely that she will focus on targeted investment incentives and cost-of-living support rather than sweeping tax cuts. Any hint of fiscal overreach could unsettle financial markets and clash with the Bank's cautious stance."
Prices in the UK rose 3.8% in the 12 months to September, the highest rate since early 2024 and nearly double the 2% target. Underlying price pressures remain stubborn, increasing scrutiny on the Bank of England and the Chancellor's Autumn Budget. Persistent inflation keeps the cost of servicing national debt high and unsettles gilt and broader financial markets. The IMF judges much of the pressure as largely "temporary," but the current trajectory is unlikely to reassure markets quickly. The Chancellor is likely to prioritise targeted investment incentives and cost-of-living support over broad tax cuts. Interest rates are expected to remain at 4% until clearer evidence of wage cooling emerges, with potential cuts pencilled in for spring 2026 depending on disinflation through winter.
Read at London Business News | Londonlovesbusiness.com
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