Here's what the UK Spring Statement means for companies and markets

Our economists take a closer look at what was contained in the UK Spring Statement and share key takeaways for corporate decision-makers and investors.

It’s not all doom and gloom. The OBR expects business investment to grow rapidly – at a healthy 10% clip this year The unemployment rate is now forecast to trough in Q1 2022 at 3.9%, a whole percentage point lower than what was expected in October and back to the pre-pandemic lows. As for economic growth, the OBR’s forecasts beyond 2022 are significantly more optimistic than our expectations (and almost twice as high as the Bank of England projections in 2023 & 2024).

Still, uncertainty clouds the outlook. The full impact of the invasion of Ukraine – especially at the fuel pump – hasn’t’ been fully factored into the outlook. Labour markets remain tight, which could put more upward pressure on prices. Any steeping of inflation, and therefore interest rates, could pose a threat to the state of public finances and business sentiment.

It’s against that backdrop that the Chancellor’s Spring Budget was revealed, and here are some of the key takeaways for corporate decision-makers and investors.

Some help at the pump with a fuel duty cut

As broadly expected, the UK government announced a fuel duty cut of 5p a litre, which will start immediately and last until 23 March 2023.

This follows similar moves by other national governments in recent weeks, including France and Ireland, and will certainly be welcome news for households as well as companies – who have seen prices jump by some 25p per litre over the past month.

National Insurance changes could lure back workers and cut contribution costs

In the run-up to the Spring Budget, there had been calls from all sides for the Chancellor to delay the rise in National Insurance Contributions (NIC) announced last Autumn. Alas, there was no such U-turn. Instead, we got a substantial rise (£3000) in the threshold for NI contributions, which will now kick in at the same level as income tax.

The plus point for businesses – especially those in retail and hospitality sectors – is that the policy just might help them draw back a few workers into the labour force who had left over the past two years, or at the very least delay the departure of some, helping fill the record-level of vacancies.

Other changes to NICs will help. The Employment Allowance is being raised from £4k to £5k, which will take some 50k businesses out of paying NICs and the Health & Social Care Levy.

A welcome boost for the transition to net-zero: incentives for renewables and energy efficiency

Businesses looking to invest in renewable energy or energy efficiency were treated to new incentives. There will be no business rates due on a range of green technologies used to decarbonise buildings, including solar panels and batteries. The measure (which complements similar tax incentives for households) could provide a small uplift for energy equipment manufacturers at a time when conventional power prices are reaching record heights.

Keeping some powder dry for the autumn: investing in 'capital and ideas'

There’s rarely a Budget or Spring Statement that goes by without reference to the UK’s age-old problem of under-investment: Private investment in the US is around one quarter higher today than it was in 2016 but in the UK, it’s remained virtually unchanged since.

To that end, the Chancellor trailered plans to be set out in the autumn that help businesses invest more in productivity-boosting activities, including research and development tax relief reforms that deliver better value for money and stretch to cover for a wider range of areas including data, cloud computing, and pure maths.

Lower-than-expected public sector borrowing – but the outlook for gilts is nuanced

All told, the targeted support measures contained in the Spring Statement total roughly £8.3 billion (0.3% of GDP), but over the next five years will amount to an average fiscal tightening equal to just 0.1% of GDP. As far as the deficit (and the effort to reduce it) is concerned, that’s no macroeconomic gamechanger.

Despite a (modest) rise in spending, forecast public sector borrowing over the coming fiscal year looks set to be even lower than our tapered estimates going into the Spring Statement, with the OBR forecasting gilt issuance in the region of £124.7 billion in 2022-23 vs our figure of £157.7 billion. This is down largely to a combination a larger-than-expected tax haul and the "carry over" of £49.1 billion of overfunding in 2021-22. Higher tax receipts also look set to drive lower-than-expected borrowing in the years to come, but if the past two years have taught us anything, it’s that nothing’s for certain.

For markets, the 2022 Spring Statement is supportive for gilts near term, given lower-than-expected issuance volumes. Longer-term, however, the outlook is less certain. Changes in composition to of gilt issuance – mainly, more T-bills and short-term notes and significantly less medium-term notes – still show a sizeable supply of longer-duration gilts for the market to absorb when compared to 2021, as the Bank of England pulls back on asset purchases in the months ahead. That the Debt Management Office (DMO) doesn’t plan on reducing the proportion of inflation-linked debt is also likely negative for gilts.

Login to Agile Markets to get the full report. Don’t have access? Get in touch with your NatWest representative to learn how you can sign up.

This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in The Netherlands, authorised and supervised by De Nederlandsche Bank, the European Central Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, The Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, The Netherlands. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright © NatWest Markets Plc. All rights reserved.

scroll to top