UK Autumn Statement: Chancellor made markets boring again
UK Chancellor Jeremy Hunt has brought back a degree of market credibility with his Autumn Statement, but the signalled support for rate hikes implies more pain for people in Britain.
Hunt announced a series of stealth tax hikes and spending cuts within Thursday’s budget. Some of the measures include:
· 45% additional rate tax threshold is reduced from £150,000 to £125,140
· Personal allowance, 40% higher rate tax threshold, National Insurance bands and Inheritance Tax Nil Rate Band (including Residence NRB) were already frozen until April 2026, now this has been extended until 2028.
· Capital Gains Tax exemption, currently frozen at £12,300 until April 2026, will now be reduced to £6,000 in April 2023 and £3,000 in April 2024.
· The Stamp Duty Land Tax reductions, introduced in the Kwarteng mini-budget, will be retained, until 31st March 2025.
· Pensions Triple Lock – unaffected with state pensions to increase by 10.1% from April 2023.
The markets, in the main, have been unmoved by the Autumn Statement. Indeed, the Chancellor has actually made markets boring again, which is a government win.
As I was quoted by The Daily Express, Mena FN, Investor Ideas and The Scotsman, amongst other media, the focus was to restore credibility following former PM Liz Truss’s mini-budget in September when the Sterling dropped to all-time lows against the Dollar, gilt yields soared, and stock markets declined due to the rash economic policies.
So, no major volatility in the pound and bond market indicates Hunt’s statement has regained some much-needed market credibility.
Although Rishi Sunak’s government may have calmed the markets, there are still a number of questions regarding Hunt’s stance on Britain’s skyrocketing inflation crisis as it reached over a four-decade high of 11.1%.
The Chancellor threw his support behind the Bank of England to tackle inflation, which signals his support for additional, and likely more aggressive, rate hikes. And all this at a time when the country is plummeting into a recession.
Another rate hike could make the economic downturn in the UK’s consumer-driven economy worse and last for longer.
It would signify elevated borrowing costs for property owners on variable-rate mortgages. Lenders will also hike the rates they charge on personal and business loans at a time when households and firms are facing a mounting cost of living crisis.
As such, the BoE’s forecast rate rise would be detrimental to the economy and increase the pain for people nationwide.
Furthermore, the Chancellor started out by saying the inflation issue is predominantly driven by external factors, such as soaring energy prices, as opposed to domestic ones.
So, why is he supporting the Bank of England to keep hiking the country’s interest rates again when they can’t tackle inflation stemming from global issues?
Consequently, the markets will welcome Jeremy Hunt’s fiscal discipline, yet households and businesses throughout Britain will be preparing for even more financial pain in the coming months.