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Industry figures say spring statement will buy the government time

Fund managers have broadly welcomed the UK government’s spring statement on the economy, while warning that the spending cuts likely do not go far enough to provide a long-term solution to the county’s ailing economy.

In Chancellor’s spring statement, announced in Parliament today, Rachel Reeves announced governmental spending cuts of £3.6bn by 2029-30, an increase in defence spending of £6.4bn by 2027 and welfare cuts of £3.4bn as she seeks to implement a £14bn repair package to fill a hole in the public finances.

Shamil Gohil, fixed income portfolio manager at Fidelity International said: “The Chancellor has replenished the fiscal headroom back to £9.9bn (spending rule), which may provide some relief in the short term, but this is a temporary fix, kicking the can down the road.

Longer term, budgetary challenges remain as higher interest rates and weaker growth persist.

£10bn headroom is arguably not enough headroom compared to a planned £1.5tn of spending and uncertainties ahead.

“The historical average has been closer to £30bn but recent governments have run it tighter. A £20bn number would have been more constructive for gilts. Ultimately, the fiscal headroom is how the market quantifies and judges the Chancellor’s credibility.

Gilts probably remain in no man’s land until the Autumn budget as we will likely to see some fiscal slippage and buffer erosion from now until then.”

Over at the private equity trade body, BVCA Chief Executive Michael Moore said: “Stability is a fundamental prerequisite for business investment, so we welcome the Chancellor’s renewed focus on providing political and economic policy certainty.

The Government’s direction of travel on defence and capital investment, planning and regulatory reform are positive pro-growth measures. It is therefore vitally important that the Government maintains momentum on these key issues that are fundamental to growth.

“Private capital already plays an important part in the UK’s national security. So, the Government’s announcement of a Defence Growth Board, and a focus on developing innovative domestic start-ups that will have greater access to MoD contracts through procurement reform, will give investors greater confidence that defence will sit at the heart of industrial strategy.


It is crucial that the Government supports an enabling environment so fast growing businesses can access the capital they need to scale. The BVCA looks forward to engaging with Government on the role of tax reliefs such as the Enterprise Management Incentives Scheme, the Enterprise Investment Scheme and the Venture Capital Trust Scheme.

George Brown, Economist at Schroders said: “Investors will be left in no doubt of the Chancellor’s commitment to fiscal sustainability given the corrective action taken today.

But this needs to go hand in hand with improving the supply side of the economy. Even tepid growth is causing inflation to remain stubbornly sticky, such that we expect the Bank of England will have limited room to cut rates much further.

Recent government decisions to greenlight several major infrastructure projects are critical steps in the right direction for boosting long term growth. However, businesses and households can also play a key supporting role with the right incentives in place to funnel funds into cultivating the British success stories of tomorrow.

Meanwhile, Luke Bartholomew, Deputy Chief Economist, at Aberdeen (formerly Abrdn), said: “The Chancellor has restored her initial headroom of nearly £10 billion pounds following some well trailed welfare and day-to-day spending cuts. Crucially the debt management office said it is planning slightly fewer gilt sales this fiscal year than expected and skewed towards shorter issuance, which is helping gilt markets perform well.

“But the key point from today’s announcement is that the £10 billion headroom the Chancellor has restored is very small and remains highly sensitive to adverse market moves or growth developments.

“Indeed, depending on how the market responds to the US tariff announcements scheduled next week, the extent of UK inclusion within those tariffs, and any concessions the UK government makes as part of a deal with the US, this headroom could quickly be wiped out again.”

Tim Service, Investment Manager, UK Small and Mid-Caps at Jupiter Asset Management, said: “After the fallout from the October Budget, Rachel Reeves will have been keen to make her Spring Statement a non-event.

“Tetchy bond markets, a sluggish UK economy and increased urgency to ramp up defence spending have all conspired against her: as evidenced by cuts today to civil service budgets and welfare spending, to keep the government within its self-imposed fiscal guard rails.

It is not all doom and gloom for UK equity markets, however. Valuation matters: UK small and midcap equities are valued at low multiples of profits compared to international peers and the UK’s own history.

The fundamentals are not all bad either: consumer savings rates are high, and listed companies generally have low leverage. Both have the scope to take on more risk should animal spirits and confidence return. And while no economy will be immune to the fallout from a full-on global trade war, the UK has limited direct exposure to US tariffs.”

Neil Mehta, Portfolio Manager at RBC BlueBay, said: “This Spring statement does little to claw back investor confidence in the government’s economic agenda. Fiscal ‘headroom’ was restored after being wiped out but assumptions on future growth, borrowing costs and the impact of new policies continue to err on the optimistic side. Growth forecasts were lowered in the near term but upgraded for subsequent years, which feels reminiscent of another bout of can-kicking (to the next budget).

The UK economy is simply not set-up for potential growth close to 2%, given productivity trends and a mediocre track record on implementing supply side reforms. Housing reform is a good start, but what’s required is a ‘big bang’ of sorts that includes energy and labour market policies to shunt growth higher.

Unfortunately, the government continues to box itself in regarding policy choices, and we could find ourselves with a sense of deja vu in a few months ahead of the full budget later this year, with the government scrambling to find new ways to save (or generate) money, as the political and economic choices narrow further.

Source: Fund Europe

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