United Kingdom: Investment push lifts borrowing – Deutsche Bank

Deutsche Bank economists Sanjay Raja and Maui Brennan assess UK Autumn Budget leaks suggesting Chancellor Healey will deploy Public Financial Institutions (PuFins) more aggressively than assumed. FT and Times reporting point to GBP 20.4bn of additional investment via the National Wealth Fund and British Business Bank, backloaded from 2028/29, lifting cash borrowing and reducing perceived negative tail risks around the Budget.

PuFins expansion and borrowing impact

"For context, our baseline assumption was that the Chancellor would tap into the fiscal rule flexibilities, using financial transactions via public financial institutions (the so-called PuFins), to boost investment spending via a two-stage approach: a GBP 8bn expansion in the coming Autumn Budget, followed by an equal increase in the Spending Review due next year."

"Headlines from the FT over the weekend, however, suggest that Chancellor Healey will do more in the Autumn Budget, adding around GBP 20bn in investment over the next five years."

"Taking into account the slightly higher savings from HMRC, we project a near GBP 10bn increase per annum over the back half of the OBR’s forecast horizon, leaving the government’s gross financing requirement at just over GBP 250bn at the end of the forecast horizon (2030/31)."

"Using the OBR’s multipliers, we estimate that projected financial transactions could result in a 0.5% boost to GDP by 2031/32."

"With investment spending now primed to be bigger than expected, one large tail risk for Budget Day has been removed with markets likely to adjust to the news ahead of the 28th of October."