We are not expecting the planned fiscal policies of the government to derail the economy – we expect GDP to grow by 1.0% this year and by a decent 1.5% in both 2025 and 2026. Instead, the main influence of the government’s plans to raise public spending and taxes will be a rotation in the shape of GDP growth away from consumer spending and towards government consumption. And even if the government were to raise taxes by much more than public spending, we would become more confident in our view that the Bank of England will reduce interest rates further than most expect, from 5.00% now to 3.00% rather than to the trough of 3.50% anticipated by investors.
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