The Mini Budget Decoded by Fjolla Kondirolli, Economics Researcher.

VAT free shopping for foreigners will increase demand for UK goods, which could help the retail sector in the UK, and especially in London, in the short run.

Because of the pound depreciation, UK goods and services are cheaper which means that there will be an increase in demand from abroad. This could increase investment in the industry which increases demand for labour and capital. But because of the high interest rates introduced by the Bank of England, borrowing money has now become more expensive. Moreover, restrictive labour movements, made worse by Brexit, have caused labour shortages that need to be addressed for the increase in investment to be feasible. 

To fund the massive tax cuts, the government will take on more expensive debt now in the hope that the economic growth rate is higher in the future. This is a risky move, and it might discourage investment from abroad as investors lose confidence on the currency. 

Corporate tax cut increase from 19% to 25% was cancelled in hope to increase investments, but a lower corporate tax has historically not helped as UK ranks last among G7 countries in private sector investments as a share of national income. 

The government should focus on increasing productivity and investment in skills. The UK has a lower productivity level and growth than other countries such as Germany, France, and the US. A longer-term plan focused on investment in skills and innovation will amount to a more sustainable economic growth compared to short-term policy options such as the tax cuts proposed.