UK chancellor Jeremy Hunt has delayed the date for his long-awaited medium-term fiscal plan from October 31 to November 17, as calmer markets give the government some economic breathing space.
Hunt made the announcement on Wednesday morning after talks with new prime minister Rishi Sunak, who wanted more time to go through the details of a defining economic statement.
The more benign market conditions have lowered the government’s borrowing costs in the medium term, reducing the need for swingeing tax rises and spending cuts.
The government’s borrowing costs rose slightly in response to the announcement of the delay. The yield on 10-year gilts was 0.03 percentage points higher at 3.65 per cent, reflecting a fall in price, while the 30-year yield climbed 0.11 percentage points to 3.78 per cent.
But the yields remain well below the levels reached on Friday, before Sunak emerged as the sole candidate to replace Liz Truss as prime minister.
The economic statement will aim to close a big fiscal hole, which was estimated at about £40bn, with a series of tax rises and spending cuts. Hunt has said the choices will be “eye-wateringly difficult”.
Part of that hole reflected high borrowing costs for government stemming from a loss of confidence in the UK’s public finances while Truss was prime minister.
The Office for Budget Responsibility said on Wednesday that it would have had to use financial market and energy price data from the “early to the middle part of October” if the fiscal statement had been on October 31.
Because this would have spanned dates of deep stress in the gilts market, it would have significantly pushed up the forecasts for government debt interest costs.
Delaying the fiscal statement will reduce the hole in the public finances by more than £10bn because of market movements since Truss resigned.
Hunt made it clear he was seeking to take advantage of the calmer market conditions, saying on Wednesday that he wanted the autumn statement now to be “based on the most accurate possible economic forecasts”.
The new date will, however, complicate the interest rate decision of the Bank of England, due on November 3. BoE governor Andrew Bailey said the central bank would be “flying blind” if it had to set interest rates before knowing the government’s budgetary plans.
Hunt said he had discussed the delay on Tuesday with Bailey and the governor understood the reasons for the change of plan.
The chancellor added that the delay was “prudent” and that he was not afraid to take “politically embarrassing” decisions if they were in the national interest.
November 17 is the fourth date given by the government for the crucial medium-term fiscal plan, which is expected to set out a five-year programme for bringing borrowing under control.
Kwasi Kwarteng had told the Financial Times when he was still chancellor that the plan would be published “in the new year”, before being forced to rush forward the date to November 23 and then to October 31. Hunt and Sunak will be determined to stick to the new date.
People briefed on Hunt’s thinking expect the statement to contain a new fiscal rule that would aim to have debt falling as a share of gross domestic product in the fifth year of the OBR forecast. This is looser than the existing rule that requires debt to be on a declining path by the third year of the forecast.