• Budget sees taxes rise for many households but does little to stimulate growth
• CPI inflation edges downwards but inflation expectations remain elevated
• Mortgage approvals drop in October, but lending up over the year
• Savings jump in October due to uncertainty ahead of the November budget

1. The Chancellor delivered her budget on 26 November following weeks of uncertainty driven by leaks and speculation. The budget largely was tax raising, with landlords and some homeowners asked to pay more. Savers were also hit with a lower Cash ISA allowance and higher tax rates on savings income. Further details are provided later in this report. Policy measures in the Budget result in increased borrowing in the near term, to fund increased spending, and then reduce through increases to taxation.
2. On balance the Budget is judged to have little impact on UK inflation or growth. The OBR’s latest forecasts point to continued weak growth in the UK economy over the next five years. GDP is expected to grow by 1.5% over their five-year forecast period, which is 0.3% lower than was predicted in March. This is largely due to lower underlying productivity growth which is now forecast to be 0.8% over the five-year period, down from 1.1% in March.
3. Inflation has continued to fall in the UK, and in October CPI inflation was 3.6%, down from 3.8% in September. The closely watched CPI services also fell to 4.5% from 4.7%. However, the highly salient food category saw prices rise by 4.9% over the year, up from 4.5% in September. Whilst inflation is heading in the right direction to enable further monetary easing, higher food and fuel prices could see inflation expectations, and therefore wage settlements, remain higher. The OBR have raised their near-term inflation forecast by 0.5 percentage points to reflect the greater momentum in domestically generated inflation. They do not expect inflation to fall to the 2.0% target until 2027 – a year later than expected in March.
4. Labour market conditions have continued to soften. The unemployment rate increased to 5.0% in July to September, up from 4.7% in the previous three months. The OBR expect it to remain at this level and then fall back to its estimated equilibrium of 4.0% over the next five years. However, wage growth remains relatively strong. Average annual regular earnings grew by 4.6% in July to September, just marginally down on the 4.7% in the previous three-month period.
5. After inflation, real regular pay growth was 0.8%. Whilst the OBR now expects CPI inflation to be higher, they also expect real wage growth to be stronger as pay settlements are holding up significantly more than expected.
6. The budget should have minimal impact on the thinking of MPC members ahead of their meeting on18 December. The previous vote was split 5 – 4 and higher inflation expectations and wage growth will remain a concern, despite the reduction in headline inflation. The latest market rates show Bank Rate is expected to be 3.83% in one month, which suggests many market participants are pricing in a cut in December. By April Bank Rate is priced at 3.57% and then reaches a low 3.34% in one year before increasing out to 5 years.

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