Small, Targeted Tax Rises Expected at U.K. Budget — Market Talk

What happened

Investors expect small tax rises at the U.K. budget, likely targeting banks, online retailers and gambling activities, Ebury's Matthew Ryan says. Capital gains tax appears off the table, and markets have priced in a moderate budget statement with minimal policy changes.

Confirmed

Global impact / market context

Targeted tax rises on banks, online retailers and gambling companies would raise costs for those businesses and could reduce their profit per sale. Keeping capital gains tax unchanged, which is the tax on investment gains, limits the immediate hit to growth.

Analyst inference

Markets have already priced in a moderate budget with few policy changes, so investors may see little reason to reposition. A cautious statement could leave bond vigilantes, meaning investors who sell government bonds when worried about borrowing, with little to do.

Analyst inference

What to watch

1. Watch whether the budget confirms small tax rises aimed at banks, online retailers and gambling activities, as investors currently expect, and whether capital gains tax stays off the table. Confirmed
2. Watch whether the government proposes any measures beyond the expected targeted tax rises, since a broader set of changes could alter the cautious budget markets have priced in. Proposed
3. Watch the reaction of bond investors, because a cautious budget with minimal policy changes is expected to give bond vigilantes little reason to sell government debt. Analyst inference

Evidence

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