Will The UK Budget 2024 Boost Economic Growth?

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The reaction of bond markets will be important. If they are not convinced, then they could sell off gilts which would increase the cost of borrowing for the UK. As repayment of interest on debt would come out of day-to-day spending, this could require the government to raise taxes further, which would be tough during a weak growth period. Alternatively, they would need to reduce public spending, which would also be unwelcome since the Chancellor does not want a return to austerity.

A key factor as to whether the government's fiscal plans will be viewed as credible is if it generates GDP growth.

The OBR's assessment will help financial markets assess whether or not the additional borrowing to invest will generate economic growth. But, it won't be sufficient. To boost economic growth requires the broad enablers of growth, such as regulatory transparency, planning reform, energy, investing in a skilled workforce, among others.

The Budget and the pre-Budget briefings set out a number of ways to provide the context for economic growth, including pre-clearance for foreign direct investment so multinational companies can gain some assurance before committing significant funds invested over a period of years, as well as their intention to reform planning and the energy mix. The latter factors add considerably to the cost of investment, so private investors will be carefully watching for developments in both areas. Also, although investments in people will take time, but businesses will expect the UK to address its shrinking workforce as it is the only major economy not to have its labour force return to pre-pandemic levels.

But, by focusing on separating capital from current spending, this Budget has increased transparency, which is what bond markets in particular will be looking out for. But, as with all policies, the proof of the pudding will be in the implementation.

In short, these two fiscal rules have laid the foundations for an investment-driven growth strategy for the UK. Now comes the hard part of delivering it.