Given the intense anticipation for the Autumn Statement please find below our market update and a summary of the macro impact.

Post Autumn Statement Market Update

  • The fiscal consolidation package, alongside Hunt’s reiteration of his support for the Bank of England further reduces the risk premia priced into the Gilt market sparked by the Truss/Kwarteng mini-budget panic selloff.
  • On balance, we do not expect the announcements to have much of an impact on Gilts from here, given the rally beforehand. The mini-budget yield sell-off has been reversed in the face of a more stable fiscal outlook, whilst the terminal bank rate market pricing of 4.6% is now holding steady and well below the peaks seen a few weeks back. If anything, this is likely to be a touch too high given the weakness in the UK economy.
  • The announced tightening measures are fairly back-loaded and, at the margin, this is positive for growth with the tightening impulse in the short term perhaps less than expected. However, the increase of the effective energy price cap by £500 will further squeeze consumers next year.
  • The OBR’s (Office for Budget Responsibility) inflation and growth outlook perhaps looks a touch optimistic and leaves room for a downside surprise to growth in 2024 and a potential breach of the 3% borrowing/GDP target with only a ~0.3% headroom here on current growth forecasts.
  • Our overall positive view on GBP denominated credits remains intact, where a risk premium is still built into UK spreads. We do not foresee the increased energy and utility levies as having significant credit impact on UK names given the strength in earnings and balance sheet improvement in recent years.
  • Our duration strategy is retained. There isn’t sufficient news to trigger a move further up the interest rate curve. Clearly, we will be closely monitoring the BoE’s response and incoming data to review our duration strategy.

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