Healey poised to deliver ‘long grass’ Budget

John Healey, the Chancellor-elect, is expected to deliver a Budget that puts off significant decisions on defence spending, tax reforms, and welfare bill reductions, according to economists. These projections suggest that Healey will delay major financial choices until a Spending Review in 2027. Raising defence spending to three percent of GDP from its current 2.7 percent would add around £11 billion annually.

Analysts like Pantheon Macroeconomics' Rob Wood and Elliott Jordan-Doak predict that the Budget will lack clarity on key areas, which could increase government borrowing costs and compromise fiscal consolidation credibility. They argue that the Budget fails to account for potential spending pressures, such as public sector pay increases and defence funding.

Peel Hunt's Kallum Pickering highlights the government's lack of commitment to addressing distortions in the UK's tax code and the welfare system's inefficiencies. Healey's announcement of measures to lower energy costs and strengthen national security is anticipated to be well-intentioned but short-term. The Chancellor is expected to offer temporary support to households and businesses amid inflation pressures and trade disruptions, leaving longer-term fiscal decisions "in the long grass."

Morgan Stanley's Bruna Skarica warns that traders might perceive short-term measures as permanent, prompting heightened scrutiny of the fiscal plan. The Spending Review, a potential test of the government's spending restraint, may be delayed further.