In the wake of Rishi Sunak’s summer economic update, industry professionals have praised the “financial policy innovation” and “spirited” response but are wary of “only a cursory nod” to balancing the books in the Autumn.
The announcement was "all about spending and stimulus", according to Rachael Griffin, tax and financial planning expert at Quilter, from a government "keen to cast Labour as the party of ‘tax,tax, tax'", but noted that Sunak will struggle to repair public finances "without either raising taxes or curbing tax reliefs".
"For the time being he can enjoy a moment in the sun, with a jobs plan, giveaways to homebuyers and subsidised meals… but come the autumn, the Treasury will have to confront some hard truths and the Chancellor already knows he will have to land some difficult messages."
Neil Williams, senior economic adviser at Federated Hermes, added that the "useful ‘sticking plaster'" will likely need another "fiscal ‘jump-start'" in the autumn to achieve a V-shaped recovery, the legacy of which will be "debt build-up".
"Taking all measures together, the budget deficit now balloons beyond £300bn in 2020/21. At over 15% of GDP, this is easily a post-war high and dwarfs the 2.4% expected in March. It makes the UK government debt-to-GDP ratio three times Japan's when Japan entered its ‘lost decade' in the mid-1990s.
"The UK's debt, at 100% of GDP, is its highest ratio since 1963. A year ago it was 80%. Unless growth takes off, we would by 2030 reach our 250% post-war high if debt continues accumulating around this pace."
However, the announcement today brought welcome "financial policy innovation outside of the central banks", according to Hinesh Patel, portfolio manager at Quilter Investors, who highlighted the cut in VAT for hospitality and tourism being "deeper than initially briefed", providing a template for other sectors".
Neil Birrell, chief investment officer at Premier Miton Investors, added that the ‘eat out to help out' scheme is "bound to get people out into the pubs and restaurants in August, and will also help with employment numbers" for a cost that is "nothing in comparison with what has been spent so far".
Jobs were a key message from the Chancellor, and Birrell also said that the Kickstart and Traineeships schemes "will create some jobs", providing some "good news" without "a massive financial commitment".
However, Robert Alster, head of investment service at Close Brothers Asset Management, suggests that while the job retention bonus "looks attractive", it is "more likely to provide a welcome boost to employers already planning to bring workers back rather than forcing businesses to rethink layoffs".
He added that the measures designed to boost and support jobs, along with the hospitality support measures, show the government is willing to "think creatively about problem solving", but are all a "shot in the dark, and one that must still be paid for at a later date".
Mike Bell, global market strategist at J.P. Morgan Asset Management, described removing the furlough scheme before activity has returned to pre-pandemic levels as "building three quarters of a bridge and not finishing it because it is becoming expensive".
While the package announced "attacks some of the most pressing needs in this recovery", according to Andreas Billmeier, sovereign research analyst at Western Asset Management, he added that "the overall envelope is not particularly large by international comparison".
"We think that the real challenge will come when the furlough scheme runs out and structural change in the economy due to this pandemic, but also the fallout from Brexit, could cause a marked increase in the unemployment rate.
"We do not think the announced retention bonus will have any impact on those structural forces."
Also highlighted in the Chancellor's speech was a ‘green recovery', which David Zahn, head of European fixed income at Franklin Templeton, said is "likely to be repeated around Europe" as fiscal and monetary policy now shift to support "the greening of the economy", which should be "very supportive of the green bond market and allow it to continue to expand and diversify".
Alan Custis, head of UK equities at Lazard Asset Management, pointed to the grants for making homes more energy efficient as a "welcome move to reduce our carbon output", with the money spent on the initiative sure to have a "material impact on those businesses that support home improvements".
However, he added that the initial market response has been "somewhat anaemic", with "even those sectors that have been directly targeted for help, such as pubs and restaurants and house builders, seeing little in the way of a positive response".
Overall, the statement focused on "'good' news items designed to stir the UK economy from its economic slumber", according to Tom Selby, senior analyst at AJ Bell, but within it was a clear message that "stabilising the public finances and paying off the estimated £300bn bill racked up during the pandemic will be a key priority in the Autumn Budget later this year".
"With Boris Johnson ruling out a return to austerity, a tax-grab seems almost inevitable as the Treasury seeks to balance the books."