As wealth managers digest the content of Chancellor Jeremy Hunt’s first ever Spring Budget earlier today, investment experts have been sharing their responses with Wealth DFM magazine. We’ve posted a selection of those comments below:
Marcus Brookes, chief investment officer at Quilter Investors said: “Today’s budget has been delivered under the backdrop of a seemingly teetering global financial system with the fallout from SVB and Credit Suisse weighing on share prices. Unlike the ‘mini-budget’ of September, the Government will be relieved it is global actions disrupting markets rather than its own policies.
“Indeed, the Chancellor was keen to stress that the UK is back on the track to growth following a difficult 2022 and start to 2023. The Chancellor may have said that the UK won’t enter a technical recession this year, but for many this will have felt like one, and it is hard to get away from the fact that growth has stagnated. Jeremy Hunt’s positivity is perhaps slightly premature, particularly given the backdrop, but it can be said that with energy prices where they are and inflation beginning to fall back, we are in a better position now than we perhaps were six months ago.
“However, the forecasts from the Office for Budget Responsibility highlights the difficult path the UK faces. It still expects the economy to contract this year, and the level of debt is still at extremely elevated levels. Given that inflation in the US is proving stickier than first feared, its forecast that inflation will fall to 2.9% is ambitious and goes well beyond the Government’s plan to half it this year. It is hard to get away from the fact that currently growth is stagnating and while some of today’s announcements will help, that growth cannot be conjured up quickly. Mixed together with the current macroeconomic backdrop and slowing growth globally, the UK will do well to hit those OBR targets.
“For investors, the UK remains somewhat of a difficult place to judge right now despite the improving picture. With financials dominating the UK market the macroeconomic backdrop will weigh on share prices and it seems conditions could deteriorate further. It is environments such as this that highlights the importance of investing in quality companies with resilient revenue streams and that will benefit from the Government’s policies.”
Commenting on the Spring Budget, Karen Northey, Director of Corporate Affairs at The Investment Association, said:
“We support the Chancellor’s aim to ensure the UK is Europe’s most dynamic economy and share his commitment to drive forward innovation in the UK. It is crucial we create an environment that boosts our global competitiveness and enables the UK to become a technology superpower. The measures announced today, such as the new full capital expensing policy and the enhanced research and development credit, will do exactly this, while simultaneously creating the best possible place for companies to develop and grow. This will benefit the wider economy, as well as ensuring the UK remains a world-leading centre for investment management.
“We strongly welcome the abolishment of the lifetime allowance and the increase of the pensions annual allowance. This removes unnecessary complexity and creates a clear and unambiguous incentive for people to save for retirement and helps them achieve their long-term savings goals. It also has the potential to provide additional funds for investment in UK businesses and infrastructure through DC pension schemes.
“Ensuring the competitiveness of the UK regulatory regime is a key priority for the investment management industry, and we welcome the acknowledgment by the Chancellor of the importance of regulators’ behaviours in promoting growth. We will work with the Government in supporting the review into how regulators can better support innovation. We also look forward to the further measures in Autumn Statement to unlock investment from DC pension schemes and re-energise the UK listings regime – both key aims for our industry.”
William Marshall, Chief Investment Officer – Hymans Robertson Investment Services (HRIS) says:
“The overall message from the Chancellor was more optimistic than the November Autumn Statement. Less forecast borrowing alongside a stronger, albeit still weak, growth forecast from the OBR will provide some relief to the Government.
Gilt prices were already up and the stock market down on the day but, little changed after the budget statement indicating investors are focusing more on the ongoing banking concerns from the recent collapse of SVB.
The freezing of the Energy Price Guarantee should mean shorter-term inflation will fall faster than was previously assumed.
“The Bank of England (BoE) will have a keen interest on the success of the Chancellor’s efforts to increase the workforce, by enticing people back into work with measure like the abolition of the Lifetime Allowance (LTA) and increasing childcare support. A tight labour market is the key concern for the BoE as it has the potential to keep wages and therefore prices high. Any loosening of the labour market could give the confirmation the BoE need that their task of rising interest rates to manage inflation is almost over. “
Michael Saunders, Senior Advisor at Oxford Economics, a leading independent economic advisory firm, has shared his thoughts as a response to the Spring Budget as follows:
“The Budget provides extra near term support for the economy, with the three-month extension of the energy price cap, a year-long freeze in petrol taxes and a three-year rise in firms’ investment allowances. This, along with the drop in wholesale energy prices, means the economy is likely to be roughly flat during this year rather than the significant decline in activity that seemed likely a few months ago.
“But this extra support is only temporary. Over the medium-term, the UK’s fiscal options are constrained by the pressure for more public spending caused by population ageing and the economy’s low underlying growth trend. The Budget projects that, over the next five years, the tax burden will rise further with low public spending growth (and cuts in public investment) to ensure the public finances are on a sustainable path. That painful squeeze will weigh on economic activity in coming years.
“The Budget contains the faint outline of a plan to improve the economy’s supply-side and lift the economy’s dismal medium term growth trend, with the measures on childcare, labour supply, investment allowances and pensions.
“But these are only a first step. The Chancellor has not reversed the damaging cuts to public investment announced last autumn, while the increase in firms’ investment allowances is only temporary — and hence will not affect the longrun trend in the capital stock. Low housebuilding remains an obstacle to labour mobility, and the OBR expects net housing supply will remain below the 2017-19 average in every year of its forecast. The economy remains constrained by the rise in trade barriers with Europe caused by Brexit.
“The OBR expect a slight improvement in the economy’s potential output from the labour supply measures. Nevertheless, the economy’s underlying growth trend in the next five years will remain low. Further supply-side action will be needed if the UK is to escape the low-growth rut of the last decade.”
James Lynch, fixed income investment manager at Aegon AM, said: “The Chancellor’s budget was not particularly exciting – this is a very good thing from a UK perspective. Unless you are close to retirement with a large pension pot that is, as the lifetime allowance has been scrapped, if you are interested in this, there will be plenty to read in the coming days and weeks.
“At the same time we always get the Debt Management Office remit for Gilt issuance for the year ahead. Once again this was not particularly exiting, all pretty much in line at £241bn which is a lot lower than some feared back in the depths of the Gilt crisis of Sep/Oct 22, £300bn was not out of the question then.
“If there has been no excitement on the fiscal side today, there has been plenty on the repricing in Gilt yields and Bank of England expectations. 10y Gilts have fallen 60bps this month and the market is now only pricing in 10bps of policy move next week and 25bps in total.
“ The risk off events for markets that started with SVB and US regional banks has caused a reprice in market participants outlook that maybe, just maybe, that the sharp interest rate hikes of the past are finally starting to work. With that in mind from a risk management point of view from the BoE it is entirely plausible we have seen the last of the rate increases.”
Susannah Streeter, head of money and markets, Hargreaves Lansdown comments: “Jeremy Hunt’s sketch of a plan for growth has turned into a blueprint with welcome detail on incentives aimed at increasing investment in the UK. Although there will be huge disappointment that he hasn’t budged on the jump in corporation tax to 25%, the full capital expensing scheme will offer some relief. It means that every pound a company invests in equipment will be offset but it’s still not as generous as the super- allowance which it replaces.
“Clearly the Chancellor is prioritizing areas where he believes the UK has a head start and could gain lots of ground in the future with the right support and tax breaks for R&D are right at the heart of the strategy. This is a hugely welcome development in a week when many smaller life sciences firms were facing an existential crisis with funding lines at risk of being severed following the SVB collapse. Now they’ll benefit from an enhanced credit, if they spend 40% or more of total expenditure on research and development. This is a big dose of financial persuasion to stay rooted in the UK and invest for the longer term. The much swifter approval for drugs with the shake-up of the regulatory procedure could be a game changer for pharma companies.
“Shares in companies like Hikma pharma and Astra Zeneca appear to have turned a bit of a corner in the past hour, though much will depend on how the new regime is implemented and how long it will take. Given the pressure weighing on markets today as worries about the banking sector whip around, it’s hard to strip out big positive signs from investors in reaction to the budget today.
“There will stars in the eyes of workers across film, TV and animation companies in the UK given a bigger tax break is now available for big firm investing here. There is an new enhanced tax credit of 34% on expenditure although the threshold is £1 million. This is clearly aimed at getting the big Hollywood players to keep pouring bringing in business and is a step up from the 22% previous relief.’’
Robert Alster, CIO at Close Brothers Asset Management summed it up as ‘less shock and awe, more snore’ saying: “Announcements from today’s Budget have not come as a shock, and for the UK economy that will be welcomed, following the reaction last time to the Truss/Kwarteng mini budget. As expected, Hunt has focused on boosting potential growth by encouraging the nation back to work and incentivising investment. A range of measures seek to tackle the UK’s stubbornly high economic inactivity, with incentives for new parents, older workers, disabled people and the long-term sick. On the investment front, more generous capitalisation allowances for three years should incentivise investment now, but this will not change the overall investment picture if these rules do not become permanent.
“Energy prices have had a big impact on growth and inflation, not to mention the public finances, in the last two years. Extending the Energy Price Guarantee at its current level for three months will boost household spending power in the near term without breaking the bank – the scheme is estimated to cost far less now energy prices are falling. All in all, this creates room for more spending in the future, ahead of the next General Election.
“While the Office for Budget Responsibility still expects UK growth to slow, the impact is expected to be far less significant than previously thought, with a -0.2% decline predicted. All in all, the stronger outlook makes the case for marginally more monetary tightening from the Bank of England. However, the fallout from the insolvency of SVB may make policy makers more cautious.”
Daniele Antonucci, Chief Economist & Macro Strategist at Quintet Private Bank, said:
“While the Budget itself isn’t particularly surprising in and by itself, the macro and fiscal forecast does reveal that the UK economy remains under pressure. Our base case remains recession.
“The Office for Budget Responsibility, the fiscal watchdog, now expects a 10% drop in house prices. This is somewhat more pronounced than the previous prediction back in November, when the mortgage market had been impacted by the high-borrowing and spending mini-budget. The OBR expects property transactions to fall by 20%.
“Interest rates and inflation are squeezing disposable income, which is now set to drop by almost 6% over the next two years, marking the steepest fall in over half a century.
“The public finances look under pressure too. Because a good proportion of government debt is linked to inflation, the share of revenues consumed by debt servicing will rise significantly, from 3.1% in 2020-21 to 6.2% in 2021-22 and 7.8% in 2027-28.
“Given all this, the headroom to achieve the target to have debt falling, as a share of GDP, in the 2027-28 financial year is very narrow and based on somewhat optimistic assumptions in a few areas such as fuel duty rates.
“Importantly, the lifetime allowance on how much people can save in their pension funds tax free will be abolished, and the annual allowance (the amount that can be put in the fund tax-free) will increase by £20,000 to £60,000. There’s no cost in 2022-23. But by 2026-27 and 2027-28, this measure will cost more than £1 billion a year.”
