Set against the backdrop of a looming new banking crisis stretching from the US to the EU, there was a high risk that chancellor Jeremy Hunt’s first proper Budget would be completely eclipsed, especially with the deluge of leaks revealing the best bits beforehand – although he saved the total abolition of the lifetime allowance and the scale of the increase in the annual pension allowance.
Fears in the US over the extent of unrecognised bond losses, unhedged exposures and panicking depositors had receded slightly by mid-week, allowing the chancellor to briefly reclaim the limelight. But that’s not where the banking story ends. It has heaped new pressure on Credit Suisse in particular, and there are repercussions for US monetary policy given how falls in bond values have injected fragility into parts of the banking system. The Silicon Valley Bank (SVB) episode will test, and may curb, the Fed’s appetite for accelerating its use of interest rates to cool price rises. We’ll find out next week if there is a change of tack.
Another fallout could be increased resistance to one particular UK growth initiative – the theme at the heart of this week’s Budget. The government harbours ambitions to release locked-up reserves at banks and insurers for investing in infrastructure, and fledgling tech and biotech businesses. But one reason why SVB has not triggered a second financial crisis is because banks have been forced to be well capitalised. Tampering with that now to achieve other goals could be foolhardy.