In a bid to kickstart the sluggish economy without causing market disruptions, Britain’s finance minister, Hunt, recently announced a series of measures. However, caution surrounding borrowing and inflation tempered market confidence, particularly affecting bonds and the pound. The article explores the nuances of the budget, highlighting its impact on various sectors, including the stock market, taxation, and business investments.
This marked Hunt’s second Autumn Statement since assuming the position, succeeding Kwasi Kwarteng, who faced market turmoil following a mini-budget with under-funded tax cuts. Investors had initially expressed concerns about potential hard-to-fund giveaways, but the focus shifted to the growth forecasts for 2024, which contributed to tepid sentiment regarding the pound. Nonetheless, certain segments of the stock market saw positive effects from business investment and tax relief measures.
Investors cautioned that tax breaks alone might not be sufficient to boost business investment, especially with prevailing high UK interest rates. Leigh Himsworth, UK portfolio manager at Fidelity International, emphasized the need for more affordable financing costs to drive massive investment in the country.
Concerns before the budget centered around the government’s attempt to gain popularity through heavy spending, potentially leading to increased inflation and interest rates, already at a 15-year high of 5.25%. Equity markets, however, responded positively to Hunt’s business-boosting initiatives, such as the move to make full expensing on investment a permanent feature. Shares in companies like BT, investing in a substantial new fiber network, rose by 4.1% on the day.
The domestically-focused FTSE 250 index outperformed the larger FTSE 100, rising by 0.7%. Despite these positive indicators, the article notes that UK stock markets have underperformed their European and U.S. counterparts in 2023. While the budget is expected to have a positive impact on UK industry, some analysts remain cautious about the broader economic outlook.
Hunt’s decision to freeze alcohol duties until August 1, 2024, had a notable effect on brewers. Shares in Fuller, Smith & Turner rose by 2.2%, while pub operator Marston’s saw a 2.1% increase. However, the budget did not provide the anticipated boost for Britain’s homebuilders. Instead, it introduced smaller measures to address bottlenecks in the planning system. Property equity analyst Oli Creasey at Quilter Cheviot expressed skepticism, stating that these measures might not be sufficient to address the core issue of affordability.
The article concludes by highlighting the impact on British bond yields, which rose following the announcement. The Debt Management Office’s plans to sell gilts in 2023-24 were larger than expected, causing British 10-year gilt yields to finish the day up by 6.8 basis points at 4.175%. Meanwhile, the pound struggled to gain traction, falling against the dollar and the euro, with market concerns persisting about potential UK rate cuts and inflationary implications.
