From an equity market standpoint, over recent years the annual Budget Statement has become a damp squib as speeches have become more and more filled with partisan rhetoric and jokes at the expense of the party in opposition: entertaining to watch, but light on meaningful actions or surprises.
However, today’s Budget Statement was very different: not only was there a tremendous amount of titbits, but by ditching the opposition teasing in favour of a more statesman style to reflect the current coronavirus fallout, Rishi Sunak, the Chancellor of the Exchequer, cemented his reputation as a future Tory leader.
Although Rishi Sunak admitted that the thorny issue of the budget deficit and borrowing requirement will need to be addressed, given the UK economy won’t fully reopen until 21 June 2021 at the earliest (over 15 weeks away), he admitted that this would predominately be addressed in the future (as jumping the gun to increase taxes would result in a much slower economic recovery – for example, the announced increase in Corporation Tax from 19% to 25% is not applicable until 2023).
Instead, he announced further support for households and businesses to help offset the economic damage caused by the coronavirus lockdowns.
For example, he extended the business-rates holiday for retail, hospitality and leisure sectors (although we would have liked it to have been cut completely to enable the high street to compete fairly with online stores); and extended the temporary reduction of VAT for the hospitality sector. This coupled with yesterday’s announcement that the Coronavirus Job Retention Scheme (furlough) would be extended until the end of September has resulted in positive share price moves in the high street retailers JD Sports, Kingfisher (the owner of B&Q) and Marks & Spencer; along with the hotel groups, Whitbread and InterContinental Hotel; and pub chains Wetherspoon, Marston’s and Mitchells & Butlers.
Likewise, the extension of the stamp duty holiday and the announcement that he was bringing back 95% mortgages to help first-time buyers boosted housebuilders including Persimmon, Barratt Developments and Taylor Wimpey.
Despite this support, Rishi Sunak reduced this year’s expected GDP growth to 4% from the 5.5% he forecasted last November. While this will no doubt be picked up in tonight’s TV coverage, it should be noted that the UK’s 2020 GDP growth came in much stronger than November’s forecast (so overall, at the end of 2021 the UK economy should be roughly the same size as the forecast last November). Additionally, 2022’s GDP growth is now seen at 7.3% – up from 6.6% previously.
Alongside the Budget, Rishi Sunak also published an independent review into the UK’s stock market listing rules – and he announced that he will now consult with the Financial Conduct Authority, with new rules expected to be implemented by the end of this year. This review forms part of the effort to boost the financial services sector post-Brexit and the reviews main proposal could help ignite the market for shell companies (or SPAC – special purpose acquisition companies – as they are commonly called in the US), as this is a booming market in the US. Shell companies are created and listed on the stock market despite having no assets or commercial operations. Their sole purpose is to effectively acquire existing private companies – which effectively means that a private company can become a listed company without having to go through the traditional lengthy and costly initial public offering (IPO) process.
Overall, while today’s Budget Statement was much more important and professional than any we have seen for several years, what really matters for UK equities is the success of the coronavirus vaccine rollout and the lifting of the lockdown restrictions – and thankfully that is looking very encouraging.
Investment Management Team