4% interest rate by early 2023, analysts say

The new chancellor’s announcement yesterday was aimed at improving the growth rate of the UK economy by up to 2.5%, which was only last achieved before the pandemic hit the UK in 2015.

Key points of the mini-budget:

– scrapping the top 45% of the income tax bracket for those earning over £150,000.

– bring forward a reduction in the base income tax rate from 20% to 19% by April 2023.

– the rise in corporation tax from 19% to 25% will be cancelled.

– no stamp duty payable doubled on the first £250,000.

– the threshold for first-time buyers will increase from £300,000 to £425,000.

– the maximum property value for first-time buyer relief will increase from £500,000 to £625,000.

Market reaction:

banner– the pound sterling collapsed, the pound/dollar exchange rate having plunged more than 2% to trade at $1.09.

Institutional analysis:

Bill Diviney, Senior Economist at ABN AMRO gives his opinion on yesterday’s mini-budget.

“The new Truss government released details of its ‘mini’ budget this morning, which – alongside a generous support package capping household and business energy bills – comes with a series of cuts to taxes in order to stimulate the economy onto a higher growth trajectory.

“We judge the package simply delays the pain of the economic adjustment that is needed rather than averting it, with the Bank of England likely to raise rates further to offset the demand boost.”

“We now expect rates to hit 4% early next year, with upside risks.”

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