Jonathan Marriott – Chief Investment Officer, LGT Vestra
To title this “first impressions” is perhaps an overstatement as this afternoon’s budget has made very little impression on the markets. The three main markets I look to for a reaction are Gilts, Sterling and UK equities. Gilt yield moved 0.02% higher, Sterling was up 0.1% relative to the dollar and the FTSE 100 moved up 0.2% during the speech, so all in all virtually unchanged. This is not surprising as a lot had been preannounced or in the case of economic forecasts, as expected.
The Office for Budget Responsibility has revised up its 2017 growth forecast for GDP from 1.4% in November to 2.0% now but has marginally revised down forecasts for future years. Increased growth is reducing the Public Sector Net Borrowing (PSNB) for 2016/17 from £68bn to £51.7bn but the forecasts for subsequent years have smaller revisions. This indicates that in the current year, the Chancellor had some room to spend more but has largely chosen not to use this freedom. Brexit was hardly mentioned in the speech but he appears to be leaving himself some room to move if the economy deteriorates as the government negotiates Brexit.
As expected there was some relief for business rates, particularly for local pubs and small businesses. An increase in spending in Scotland and the other devolved regions may help to support the United Kingdom and hopefully strengthen relations. Levelling the playing field between those that are employed and those that offer services through companies they own, was addressed through changes in dividend tax and national insurance; the side effect being that the reduction in dividend tax allowance from £5,000 to £2,000 will impact all investors. Increased spending on schools and particularly selective free schools was largely expected, as was the new Technical qualifications for apprentices (T Levels).
Whether this is building a life boat for Brexit, or shuffling chairs on the Titanic as we move towards a potential Brexit iceberg we will have to wait and see. More may emerge from the detailed papers that will be published and dissected in the days to come. This may turn out to be just part 1 of the 2017 budget with part 2 in the Autumn. This is after all the last Spring budget as it moves to the Autumn later this year.
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