John Healey’s first Budget as Chancellor was billed as a “do no harm” Budget and, given the economic pain of recent fiscal events, it appears to have achieved that aim. The government delivered a moderate £5bn net tax rise by 2030, in line with pre-Budget expectations. Instead of broad-based tax hikes they chose to reduce fiscal headroom from £24bn to £15bn to absorb the higher debt interest costs caused by the conflict in the Middle East.

Despite the reduction in headroom, increases to borrowing and a delay to deficit reduction, gilt market yields barely moved, given that the headroom was in line with expectations and these shifts were only marginal, particularly in the light of recent Budgets.  The aggregate tax rise was in line with expectations, however, the composition was a little different from what economists had anticipated, with HMRC measures bringing in £2bn, changes to the writing down allowance adding £1bn and hikes in savings and dividend income contributing a further £1bn.

The Budget was accompanied by negative growth revisions to GDP by the OBR. While 2027 growth was downgraded from 1.6% to 1.0%, that sits in the middle of the G7’s range and we think will prove pessimistic given the UK’s track record of resilience.

The lack of spending and supply-side reform suggests that this Budget will not unlock growth in the UK, but tail risks have been removed and credibility rebuilt.

For consumers and businesses, the Budget was notable for what it avoided. Several feared tax rises on housing, capital and income were averted, while energy relief was increased and extended. This should feed through into improved consumer confidence in time. In turn, corporates were spared any unexpected tax hikes. The banks surcharge was raised to 6% rather than the 8% feared and, critically, has been time-limited to 15 months.

Housebuilders received demand-side support from the new Your First Home equity loan scheme, which makes it easier for those without a sufficient deposit to get onto the property ladder.  Although the speed of funding disappointed, the thresholds on income, asking price, and deposits looked sensible, as did the fee to access the scheme.  Perhaps more important are the supply-side reforms. Building regulation has been very harmful to the sector, and the government has committed to making no major changes to it for the rest of this Parliament. Overall, the impact on consumer spending and business investment is likely to be positive but marginal.

The lack of spending and supply-side reform suggests that this Budget will not unlock growth in the UK, but tail risks have been removed and credibility rebuilt.

In terms of the Fund, we see no need to make any material stock or sector changes. The UK market remains extremely cheap, and we are therefore planning for an environment that is much the same as the past 12 months. Accordingly, if we can find those companies that have been delivering good performance against that backdrop, we think they can continue to do so and have a decent chance of rerating.