Deutsche Bank: UK Budget leaks point to £20bn investment boost
Deutsche Bank economists say leaked details of the UK Autumn Budget suggest Chancellor Healey's team will expand public investment spending by around £20.4 billion, more than previously assumed, lifting government borrowing but reducing uncertainty ahead of the announcement.
According to reporting cited by Deutsche Bank analysts Sanjay Raja and Maui Brennan, the extra funding would flow through the National Wealth Fund and the British Business Bank, with the bulk of the spending backloaded from 2028/29. Deutsche Bank had previously pencilled in a smaller, two-stage expansion of these public financial institutions (PuFins): an £8 billion increase in the Autumn Budget followed by a matching rise in next year’s Spending Review.
Factoring in slightly higher savings projected from HMRC, Deutsche Bank now estimates the investment uplift will add close to £10 billion a year to spending over the second half of the Office for Budget Responsibility’s forecast period. That would push the government’s gross financing requirement to just above £250 billion by 2030/31.
Using the OBR’s own multipliers, the bank’s economists calculate the extra financial transactions could add roughly 0.5% to GDP by 2031/32.
Raja and Brennan said the larger-than-expected investment push removes one of the bigger sources of uncertainty heading into Budget Day, adding that markets are likely to price in the news before the Budget is delivered on October 28.
Why it matters for markets: A larger UK investment programme implies higher government borrowing and gilt issuance, which can push up UK gilt yields and influence GBP/USD through shifting rate and growth expectations. Signs that a major Budget risk has already been priced in may also reduce volatility in gilts and sterling ahead of October 28.
Source: FXStreet