Rachel Reeves has been warned that her number one mission to boost Britain’s economy is at risk amid fresh evidence that the budget has damaged business confidence following the wobble in financial markets.
With the government under pressure to defend its tax and spending plans, business leaders said the chancellor had failed to stem a rapid deterioration in sentiment among company bosses ahead of the budget, with damaging consequences for their investment intentions.
In a snap poll of more than 700 members of the Institute of Directors, the lobby group said two-thirds felt negatively about the budget and thought it would not support the government’s growth mission.
Roger Barker, director of policy at the Institute of Directors, said: “Even before the chancellor got up to give her budget speech, business leaders’ confidence had hit its lowest level since December 2022. Based on the results of to our immediate post -Budget Survey, it seems that the sentiment will have worsened even further.
“By imposing significant new tax burdens on business, the government has taken a huge risk with the economic recovery. The sustainability of its future spending plans will be jeopardized if growth now fizzles out.”
Ratings agency Moody’s said the budget would do little to improve Britain’s economic growth and said Reeves’ plans to increase government borrowing in the short term would pose an “additional challenge” to repairing public finances.
It comes after the yield – effectively the interest rate – on 10-year government bonds stabilized on Friday morning. Government borrowing costs in financial markets had risen sharply over the previous two days since Wednesday’s budget to trade above 4.5%, the highest level this year.
City analysts said the reaction was driven by Reeves’ plans to increase UK borrowing levels and the prospect of the Bank of England cutting interest rates by less than previously forecast. With markets in a delicate position ahead of next week’s US election, they also warned investors that they remain wary of Britain after Liz Truss’s mini-budget.
“We expect financial markets to remain more sensitive to the potential for UK policy missteps, given the gilt market turmoil that followed the September 2022 minibudget,” Moody’s said in a note to clients.
Darren Jones, chief secretary to the Treasury, said the government was in a “very different world” to the market panic two years ago, but suggested there were lasting consequences. “I think we all have PTSD from Liz Truss,” he told Sky News.
after promoting the newsletter
The Bank of England is expected to cut the key rate from 5% to 4.75% on Thursday next week. The central bank will publish updated growth forecasts, taking into account the chancellor’s budget.
Top economists and business leaders said the government could struggle to turn around Britain’s growth prospects after announcing huge business tax rises and public investment plans that would take years to pay off.
The latest views from the manufacturing sector show that factory output fell in October as jittery industrial firms prepared for the budget. The purchasing managers’ index (PMI) for the sector contracted, according to the survey of manufacturing bosses compiled ahead of the tax and spending event.