UK Economics, Macro & Equity Strategy: UK Politics: What Next?

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UK Economics, Macro & Equity Strategy: UK Politics: What Next?

IdeaMdebt reduction - although only once the current fiscal rules have been satisfied. On

the current fiscal trajectory, that would come, we think, only in FY2029/30.

Reuters today cited Burnham's aim to borrow £40 billion more, although it's unclear

if this was an annual number (i.e. £50 billion per year), or a cumulative one (i.e. £10

billion per year extra). With day-to-day spending, borrowing is normally cited in

annual terms (i.e. once spending is lifted by £10 billion, it is most often not

immediately cut the year after - hence such an uplift carries over). With capex,

cumulative figures are normally reported. Burnham has, per Reuters, also advocated

tax cuts for low income earners, tax hikes for high income earners, and taxes on

expensive homes. Note, Chancellor Reeves introduced an annual levy on more

expensive houses in the Budget last year. Elsewhere, Burnham has historically been

pro-EU, and has advocated for devolution of power in order to improve regional

growth. He is in favour of changing the UK's voting system, from first-past-the-post

towards proportional representation.

Putting this in perspective | UK's fiscal outlook: We see risks around our 2026

fiscal forecasts as balanced, but largely due to the uncertainty around the growth

and inflation outlook related to the closure of the Strait of Hormuz. The hit to

headroom from the likely Middle East events-related forecast revision looks to be

£11 billion, albeit debt servicing costs pose an upside risk. In any case, political

choices remain the key risk for 2027, where we think the skew is towards a wider

deficit than our already above-OBR forecast. We do, ultimately, see limited scope for

additional borrowing given market constraints.