LIVE MARKETS-BNP sees UK autumn budget balancing fiscal credibility with political risks

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BNP SEES UK AUTUMN BUDGET BALANCING FISCAL CREDIBILITY WITH POLITICAL RISKS

BNP Paribas expects the UK autumn budget to strike a more constructive tone on the fiscal outlook, aiming to narrow the fiscal gap while maintaining room for targeted tax changes.

According to analysts, a well-balanced budget should uphold strict fiscal rules to ensure consolidation, permit necessary adjustments to tax policy, and focus on strengthening confidence in economic management, while curbing inflation and market instability.

The central scenario, expected to meet all targets, advocates a holistic strategy that combines incremental revenue measures with broad-based tax reforms.

While such changes could theoretically breach a manifesto pledge, this approach offers the most balanced trade-off between strengthening fiscal credibility and limiting the impact on Labour's polling.

Analysts say possible measures include freezing income tax and National Insurance thresholds until 2030 (+£10.4bn), raising income tax by 2p while cutting employee NICs (-£6bn), and removing VAT on energy bills (-£1.5bn).

Although this budget marks the second consecutive large-scale revenue-raising effort by the government and potentially the first income tax increase in nearly 50 years, BNP believes that structural reforms and additional flexibility could help avert similar measures in the future, while creating a stronger buffer against shocks of around 18 billion pounds.

Earlier this month, British finance minister Rachel Reeves signaled the need for broad tax increases to avert a return to "austerity", citing a challenging economic backdrop of soaring post-pandemic debt, years of weak productivity, and stubborn inflation.

She also suggested she may break Labour's pledge not to raise major taxes to reassure investors of her commitment to fiscal discipline.

The British budget will be unveiled on November 26.

(Anastasiia Kozlova/ Johann M Cherian)

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