British finance minister Jeremy Hunt has announced a series of measures aimed at boosting the UK economy, including a bigger-than-expected cut in social security contributions and incentives for business investment. However, the pound fell against the dollar and the euro, and blue-chip stocks remained in negative territory. One of the key measures announced was a plan to freeze duty on alcohol until August next year, which led to a rally in shares in pubs. Hunt also revealed that UK growth is forecast to reach just 0.7% in 2024, a significant downgrade from the 1.8% expansion predicted earlier this year.
The announcement by Hunt had an immediate impact on currency and stock markets. The pound fell by 0.5% to $1.247 following the speech, while benchmark 10-year gilt yields increased by 4 basis points to 4.142%. The reaction in markets was described as limited, with experts suggesting that many of the policy changes were either expected or seen as having minimal impact on the economy.
The Office for Budget Responsibility (OBR) downgraded its forecast for UK GDP growth next year from 1.8% to 0.7%. Analysts have attributed this to the stagnant labor force following the Brexit vote. Charles Hepworth, Investment Director at GAM Investments, said that the lack of growth in the labor force and productivity is a problem across many economies.
Some experts have expressed concern that the UK economy faces a high risk of stagflation, which has led them to remain cautious on domestic stocks. Thomas McGarrity, Head of Equities at RBC Wealth Management, said that while they remain neutral overall on UK equities, they have a bias for globally diverse businesses that trade at a notable valuation discount.
Matthew Ryan, Head of Market Strategy at Ebury, suggested that the minimal reaction in markets to the budget announcement was due to the fact that most of the policy tweaks were either expected or seen as having little impact on the economic outlook.
The autumn statement also had an impact on the housing market. Oli Creasey, Property Equity Analyst at Quilter Cheviot, commented that the budget measures aimed at increasing planning outcomes and unlocking bottlenecks in the planning system would not significantly impact the housing market, as the main issue is affordability. He believes that inflation and changes in interest rates would have a bigger impact.
Overall, the budget was seen as a meaningful fiscal stimulus, equivalent to 0.5% of GDP. Philip Shaw, Chief Economist UK at Investec, said that the measures would help to buttress demand, but the effect on monetary policy remains uncertain. Jatin Ondhia, CEO of Shojin Property Partners, noted that the budget lacked substance for the property sector, with little to excite those involved in building, buying, and investing in UK real estate.
The announcement has also been criticized for lacking imagination and failing to address the current issues facing the property market. Marc von Grundherr, Director at Benham and Reeves, compared the budget to unwrapping a disappointing gift on Christmas Day.
Overall, the reaction to the budget has been mixed, with some experts seeing it as a positive step to stimulate the economy, while others remain cautious about the UK’s economic prospects.
More detail via Reuters here… ( Image via Reuters )