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UK Backloads A Tax Trap

• The UK’s fiscal hole was even smaller than we thought (£6bn), allowing the government to backload a fiscal tightening that is unsurprisingly focused on tax increases.
• Delaying prudence to an election year is implausible. There will be a substantial deficit in 2029-30, not the current budget surplus in the OBR forecasts based on existing policy.
• Labour is setting up a tax trap for Reform and the Conservatives to say how they’d avoid tax increases, similar to the backloaded spending cuts they myopically ignored in 2024.

By Philip Rush

RBNZ Eases While Eyeing Medium-Term Inflation

• The RBNZ surprised some economists by lowering the OCR 25bps to 2.25%, prioritising support for a hesitant economic recovery.
• The policy outlook will hinge on real-time inflation, labour, and external data, with macro risks remaining broadly balanced.
• Cautious, flexible monetary policy is expected, with future interest rate moves highly data-dependent and state-contingent.