In terms of impact, there won't be much from this I would argue as Hunt will be afforded little wiggle room in delivering on the budget. Key issues such as inflation, the cost-of-living crisis, worker strikes and the fact that corporation tax is set to jump higher next month (from 19% to 25%) are the things that he has to address.

Here is a bit of backdrop on why Hunt may not have the flexibility in being bold today:

  • UK borrowing in the 2022/23 financial year is set to come in lower than the OBR forecast, which means that Hunt will have some room to work with in terms of policy initiatives (roughly between £30-40 billion)
  • In terms of growth projections, the OBR forecasted back in November a 1.4% decline in GDP this year and that looks set to be revised higher as economic headwinds have been less resistant
  • That will give Hunt more flexibility for now but the forecasts are likely to reflect slowing growth in the years ahead, which translates to lower tax revenues
  • In that sense, Hunt has to balance out short-term initiatives and the long-term view since the fiscal rule is that debt must fall as a share of GDP in the financial year of 2027/28
  • For some context, UK debt is close to 100% of GDP as things have only worsened in the Covid years (seen at 98.9% at the end of January this year)

Now that we have covered that. Let's take a look at some of the initiatives that he is set to finalise:

  • No tax cuts are expected as Hunt already ruled that out for now
  • The energy price guarantee for households is expected to be extended for another 3 months
  • A change to childcare and welfare rules are expected, in order to encourage lower income households to get back into work
  • New measures to improve skills training and plans for 12 investment zones (more attractive tax rates) are expected as part of the "levelling up" initiative and for those areas to grow
  • To offset the corporation tax rise next month, a set of new incentives for business investments are expected and that might include tax breaks

Yup, that's about it. Considering how most of this has already been communicated previously, the impact on the pound and markets should be rather minimal. In any case, traders have bigger things to focus on this week - and next - even if the SVB fallout is beginning to subside.