Barclays_Cross_asset_UK_Budget_Policy_trade_offs_market_signals_and_sector_themes

This document is intended for institutional investors and is not subject to all of theindependence and disclosure standards applicable to debt research reports prepared for retailinvestors under U.S. FINRA Rule 2242. Barclays trades the securities covered in this report for itsown account and on a discretionary basis on behalf of certain clients. Such trading interestsmay be contrary to the recommendations offered in this report.Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companiescovered in its research reports. As a result, investors should be aware that the firm may have aconflict of interest that could affect the objectivity of this report. Investors should consider thisreport as only a single factor in making their investment decision.This research report has been prepared in whole or in part by equity research analysts basedoutside the US who are not registered/qualified as research analysts with FINRA.(i) This author is a debt research analyst in the Fixed Income, Currencies and CommoditiesResearch department and is neither an equity research analyst nor subject to all of theindependence and disclosure standards applicable to analysts who produce debt researchreports under U.S. FINRA Rule 2242.(ii) This author is a member of the Fixed Income, Currencies and Commodities Researchdepartment and is not an equity or debt research analyst.FOR ANALYST CERTIFICATION(S) PLEASE SEE PAGE 19.FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 19.FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 22.Cross-assetUK Budget: Policy trade-offs,market signals and sector themesThe forthcoming UK Budget is consequential. We providedetailed insights across Economics, Strategy, Equity andCredit. We highlight scenarios and offer views on how to bepositioned into this major fiscal event.In short, the budget’s success hinges on credibility. Delivering tough choices withoutderailing growth could stabilise markets, lower risk premia and support selectiveopportunities across equities and credit. Failure risks prolonged uncertainty andstructural underperformance. We outline our key takes here:• UK Economics: Potential fiscal consolidation: £25-35bn and potential tax rises >£40bn. Thiswould weigh on GDP growth (0.25-0.4% at peak) albeit, even with this drag, we think the UK ison course for 1.4%/1.9% GDP growth in 2026/27 as easing interest rates and diminishingglobal uncertainty pass through to the economy.• Equity Strategy: If the chancellor delivers in line with our economists’ base case, it might bea silver lining for UK equities, as the cost of capital may go down. We believe thehousebuilder, food retail, utilities and real estate sectors all offer attractive tactical risk/reward to position for a positive budget surprise that leads to lower bond yields.• Credit Strategy: The risks to sterling credit are likely to be pretty contained as credit is notthe cleanest way of expressing a view on UK risk compar