FTSE 100: is the only way down?

PM Truss and Chancellor Kwarteng’s ‘fiscal statement’ has stark implications for the FTSE 100.

Dubbed the ‘mini-budget’ by the press, it avoided the Office of Budgetary Responsibly requirement to publish economic forecasts concurrently. This decision was denounced as ‘not the best start’ by IFS Director Paul Johnson, with Commons Treasury Committee Chair Mel Stride warning the forecast was ‘vital.’

And the markets have reacted accordingly.

FTSE 100: mini budget

This non-budget is by far the largest single change to government finances since the 1970s.

Stamp duty cuts, a reduction in the basic tax rate, scrapping the additional 45% rate, reversing the NI and dividend tax hikes, cancelling the planned 2023 corporation tax hike, new investment zones, and scrapping the ban on bankers’ bonuses all made an appearance.

But the IFS response was immediate, and scathing:

‘The biggest package of tax cuts in 50 years without even a semblance of an effort to make the public finance numbers add up. Instead, the plan seems to be to borrow large sums at increasingly expensive rates, put government debt on an unsustainable rising path, and hope that we get better growth.’

The think tank warns that the Energy Price Guarantee will cost £60 billion over the next two months alone. And by FY26-27, borrowing will be over £110 billion, or 3.9% of GDP, more than £80 billion higher than the OBR’s £32 billion forecast earlier this year.

The government contests that its radical plan could increase annual UK economic growth to 2.5%, a rate not seen in the past decade.

But as the IFS warns, ‘Mr Kwarteng is not just gambling on a new strategy; he is betting the house.’