July 2015

Key points

  • Chancellor targets work and savings in his summer budget
  • Market reaction muted
  • Economy to grow at a healthy rate

Shackles off

Chancellor of the Exchequer George Osborne revealed his true colours on 8 July 2015 in the first pure Tory budget since 1996. Free of the influence of his former coalition partners, he focused on meeting the Conservative party’s election manifesto commitments, outlining welfare spending cuts, an increase in minimum pay and a cut in corporation tax.

Muted response

The gilt market responded quietly to the summer budget and the government’s plans to sell £127.4 billion in the year to April 2016, only £3.5 billion lower than previously forecast reflecting buoyant tax receipts recently. Cuts of £14 billion in government spending for the year to April 2016 and £30 billion over the rest of the parliament undershot market expectations.

The equity market also took the budget in its stride. However, shares in housebuilders fell on concerns of the effects of abolishing the permanent non-domiciled tax status, which enabled rich non-UK residents to reduce their tax bill, on the property market.


The government expects UK output to expand 2.4 per cent this year, down from an earlier forecast of 2.5 per cent, and by 2.3 per cent in 2016, unchanged from earlier expectations. We believe the economy is set to remain among the fastest growing in the ‘developed’ world this year and continue growing at a reasonably healthy rate, aided by strengthening employment. So, the Bank of England is unlikely to be far behind the US Federal Reserve in raising rates in coming months.

UK A15/0406/31102015