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Autumn Statement in Focus

Fiscal loosening measures announced in autumn statement, from January energy price cap will rise, and what's happening today.

Headlines continue to be dominated by the yesterday’s Autumn Statement, where the Chancellor Jeremy Hunt met expectations in announcing a list of fiscal loosening measures, ostensibly easing the tax burden on firms and households. Despite cutting personal and business taxes by some £20bn however, the tax burden is widely projected to remain at its highest level in seven decades.

Amongst some of yesterday’s most significant headlines, Hunt reaffirmed the governments commitment to the triple lock, which will see the state pension rise by 8.5%. The triple lock ensures that that pensions rise by the highest of either inflation, average earnings, or 2.5%, though with wage growth (including bonuses) at the 8.5% level for the period where the state pension was calculated, there had been some speculation that the government may adopt a lower figure. Hence, such a commitment to the triple lock will mean that those receiving the state pension will receive a boost of some £900 per year.

Elsewhere, a 9.8% increase in the national living wage was also announced, bringing it to £11.44 per hour. This would mean that the average full-time worker on the NLW would see their salary rise by £1,800 a year.

With much speculation around whether Hunt would deliver a cut to national insurance contributions, yesterday the chancellor announced a cut of 2 percentage points from 12% to 10% on January 6. According to the government this will equate to savings of around £450 for someone on the average salary of £35,000. However, its worth reminding that given that

NIC and Income tax thresholds have been frozen until 2028, the affect of fiscal drag will likely see a greater level of people paying a higher percentage of their income on tax.

As we looked at yesterday, Hunt also introduced a permanent extension to ‘Full Expensing’ (initially due to end in 2026). As this allows firms to deduct spending on IT infrastructure, machinery, and plant from taxable profits, this will take £250,000 off the bill for every £1m a company makes in such investments. According to the OBR, it is projected that full expensing will lead to a rise in business investment, equivalent to £3bn a year.

The Chancellor also announced that duty on alcohol will be frozen until 1 August 2024 (a year after its last rise) though duty on hand-rolling tobacco will increase by an extra 10%. The Chancellor did not announce any changes to inheritance tax, despite calls for such thresholds to be reduced.

Yesterday’s announcement comes against a backdrop of the country’s debt-to-gdp ratio exceeding 100% earlier this year for the first time since 1961. According to the ORB, growth has also been downwardly revised from a 1.8% expansion projected for next year in March, to 0.7%. The OBR also announced that inflation is also not expected to get back to the BoE’s target 2% rate until H1 2025, with it averaging 2.8% next year. Such lower-than-expected growth will thus give the government less ‘fiscal headroom’ moving forward, and the impact of inflation could well see the tax burden rise for many as fiscal-drag continues to take hold.

Energy Price Cap to Rise

As the Autumn Statement continues to dominate headlines, it has since been announced that the Energy Price Cap will rise 5% in January. According to Ofgem, this will equate to the typical household seeing their annual bill rise by just under £100 and will impact the 29 million households affected by the EPC. Here, the CEO of Ofgem cited rising wholesale gas and electricity prices as the primary driver behind the rise in the price cap, stating that this “needs to be reflected in the price that we all pay”.

Sticking with UK gas, Oman’s liquefied natural gas (LNG) company Oman LNG has entered into a nine-year agreement with BP to supply one million metric tonnes of LNG each year from 2026. This follows recent deals between Oman LNG and suppliers in Germany and France, as the market continues to adjust to supply-side shocks brought about through Russia’s invasion of Ukraine. Such energy insecurity fears across Europe have seen many countries look towards longer dated LNG contracts with exporters from Qatar, Oman and the US. LNG has also seen an increase in demand in recent years, given growing pressure on economies to decarbonise energy supplies. Oman continues to be an important player in the LNG market, holding around 11% of the global market share in 2022.

Today’s Data

Today will markets turn their attention to the release of PMI figures released through the Eurozone and the UK (ahead of the US tomorrow). Here, markets will be looking for an insight into the health of these respective economies as firms adjust to tighter monetary conditions, signs of slowdowns in the labour market, and inflationary pressures easing. Any changes in the level of economic activity will be closely watched by central bank policy makers ahead of the next round interest rate decisions in December. Today’s PMIs come ahead of the release of the ECB’s Monetary policy accounts at 12:30 and Japanese CPI released at 23:50 this evening. As the US settles down for Thanksgiving celebrations, there is also a USD holiday today.

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