Autumnal Anticipation

Autumnal Anticipation

At 11:30 this morning, all eyes will be on the parliamentary dispatch box where Jeremy Hunt will deliver his Autumn statement and much anticipated fiscal tightening measures. According to the BBC Hunt is expected to announce some ￡24bn in tax increases and around ￡30bn in spending cuts, in an about-turn of meteoric proportion from his predecessors’ ￡45bn fiscal loosening measures, set out less than two months ago.

The standard trickle information from No.11 has continued to flow downstream over the last few weeks. For example, Hunt’s is apparently considering lowering the Additional Rate tax threshold from its current level of ￡150,000 which is of course a marked difference to only a few weeks ago, when the Conservative party announced that they would abolish the Additional Rate all together.

Regarding energy, Hunt is expected to raise the energy profits levy from 25% to 35% while also committing to extend it by a further two years to 2028. Meanwhile, a new tax of 40% is also expected to be imposed on the ‘excess returns’ from electricity generators.It is thought that these two plans will raise some ￡45 over the next six years, though of course a vital caveat is that the amount generated will be heavily correlated with wholesale energy prices, which are (as we have seen) subject to meteoric swings.

Speculation is also mounting on whether the Triple Lock pension will remain unscathed, given inflation standing well into the double digits.

These comes as No.11 is expected to extend the energy support package for some households and businesses, past the proposed March limit. Energy bills are also expected to rise an additional ￡900 for each household next year, bringing it to the best part of ￡3,000 as the ￡400 one-off support payment is expected to go. The plans to withdaw the energy support guartee comes as inflation in the UK is running at 11.1%. Indeed, according to the ONS, had the energy price guarantee not been in place, inflation would have hit 13.8%, as “gas and other fuels prices would have risen by nearly 75% between September and October 2022 (instead of 25%).”

Hunt’s Statement will come as the Sunak administration look to reduce the budget deficit and ease the nation’s debt which currently sits at 95% of GDP.

Europe

In Europe, markets are considering whether the ECB may be more inclined to favour a 50bpt rate hike in December as opposed to 75bpt. This comes as inflation in the eurozone currently stands at 10.7% - its highest on record, while the base interest rate sits at 2% having risen 0.75 percentage points at the last meeting. Markets are also weighing on whether the EU will look to impose a gas cap, as natural gas storage lies well above target rate, taking some of the pressure off of Europe’s energy insecurity. ??

Republicans Take House of Representatives

Across the pond, it was confirmed that the Republicans have taken control of the House of Representatives as they crossed the 218-seat majority. It’s always worth considering however that midterms do tend to put strain on the party of the inclement President, and as such pollsters had expected Democratic losses to be higher than they were. Indeed, Since Richard Nixon's first midterm election in 1969, only Jimmy Carter and Bush 45 were able to maintain their grip of both Houses of Congress and hence almost all Presidents have had to grapple with a divided Congress.

Fed December Rate Hike Considerations

In money markets, investors also weighed in on the Fed’s Hawk Waller’s more dovish tones of opting for a 50bpt rate hike at the Fed’s December meeting. This comes as inflation in the US came below market expectations, stoking investors’ speculation that the Fed will be ready to ‘pivot’ on their rate hike course. Headline CPI currently sits at 7.7% while their base interest rate is at 4% following a course of four consecutive 75bpt rate hikes.