UK Gov’t Lays Out The Plan


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What's going on?

As the country absorbs the impact of the Brexit vote, the UK government announced its “Autumn Statement” on Wednesday (which is like a mini-budget with tweaks to existing government financial plans) – and while there weren’t a lot of changes, there were some interesting tidbits.

What does this mean?

According to official estimates, UK economic growth will be lower over the next few years as a result of the Brexit vote. The thing about slower economic growth is that it means less income for the government (since the government takes a tax on most economic activity, like businesses buying things or people getting paid). In response, the UK government will likely have to borrow much more money in the coming years than it would have otherwise had to.

Why should I care?

For the markets: More government borrowing tends to lead to higher interest rates.
If the government is going to borrow a lot more money, then the folks lending the money (in reality, anyone buying a UK government bond) are going to require a higher rate of interest. It’s a supply and demand thing: if there are more bonds out there, then their price will go down (which pushes up their interest rates or “yields”). This isn’t definitely going to happen though. For one, the UK central bank could directly buy government bonds, which would push down interest rates. But, all else being equal, more government borrowing should mean higher interest rates.

For you personally: There were also announcements that will put more money in the pockets of some Brits.
The national “living wage” (a.k.a. minimum wage) will be increased slightly – so those getting paid the least will get paid more. Also, changes to the tax code (e.g. raising the personal allowance) will result in lower income taxes (which will be most noticeable for those at the lower end of the income spectrum). Additionally, the government pledged to cut taxes modestly for those earning between £42,000 and £150,000.

Originally posted as part of the Finimize daily email.

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