The big story of the Budget is a dramatic reduction in the squeeze on departmental spending. The Chancellor made room for less spending restraint by cutting deep into the welfare budget and raising taxes significantly. He also allowed his borrowing targets to slip again.

The fiscal stance over the next two years is less restrictive than projected in March. Cyclically-adjusted net borrowing falls by 2.1 percentage points (pp) of GDP between 2015-16 and 2017-18, down from 3.1 pp in March.

The Chancellor attempted to soften the welfare cuts by raising the personal allowance and introducing a compulsory “national living wage” for over 25s, targeted to reach £9.00 per hour by 2020 versus the current minimum wage of £6.50. The OBR expects little inflationary impact from this measure but admits to significant uncertainty.

The living wage announcement represents an attempt to shift some of the burden of welfare cuts onto the corporate sector. The OBR estimates a direct impact on corporate profits of almost £4 billion by 2020, which would outweigh the benefit of a lower corporation tax rate and other business “giveaways”. Firms also suffer a big hit over 2017-19 from an accelerated payment schedule.

Households are significant net losers too, with higher taxes on dividends, buy-to-let investors, pension contributions, insurance premiums and cars swamping the cost of increases in personal / inheritance tax allowances and a raised higher rate threshold.

Higher borrowing and the living wage may incline the MPC towards an earlier rate hike. With the burden on business rising, neither equities nor gilts have much to cheer.