New Chancellor of the Exchequer Mr Rishi Sunak has unveiled his first Budget and his political
and economic aims focussed on helping the nation combat the COVID-19 outbreak, supporting
economic growth and implementing government policy of increasing opportunity for those
who live outside London and the M25.
Looking at the array of policies and initiatives introduced today from the very narrow perspective
of the stock market, investors seemed mildly impressed – the FTSE 100 rose by around
a third of a per cent during Mr Sunak one-hour speech, although the index had already shed
all of the gains made thanks to the Bank of England’s emergency half-point interest
rate cut at the start of the day.
Pre-empting both Andrew Bailey’s arrival as his successor on the 16th and the next
meeting of the Monetary Policy Committee on the 26th, outgoing Bank of England Governor
Mark Carney took the base rate back to its record low of 0.25%. He also unveiled funding
packages for small and medium sized firms and eased balance sheet regulations on banks
to give them the chance to lend more and cut more slack for borrowers who were struggling.
To supplement this monetary policy response, Mr Sunak then came up with an easing of fiscal
policy. He promised an extra £5 billion for the NHS and £7 billion in targeted measures
to assist companies and individuals with changes to rules on sick pay and business rates, assistance
with the Time to Pay tax mechanism and government-guaranteed loans for companies. Add in promised spending
in areas such as housing, research and development, national infrastructure and education and
all told Mr Sunak asserted the Budget represented a fiscal boost of some £30 billion – or
around 1.7% of national GDP.
The speech gave few details of how all of this was to be funded, especially as duty
on fuel and wine, beer and cider were frozen once more, although a further clampdown on
tax evasion is coming and – as expected – the previously planned cut in corporation
tax to 17% from 19% was scrapped. No doubt the devil will lie in the detail.
The Office for Budget Responsibility’s forecasts were updated from last March, although they
understandably remain subject to revision, given the COVID-19 outbreak. Nor do they include
Mr Sunak’s fiscal largesse.
However, the OBR did cut its near-term GDP and inflation forecasts, although the medium-term
ones were largely unchanged, with economic growth in the 1.3-1.5% range and inflation
of around 2%.
With many of the fiscal initiatives targeting small and medium-sized firms there may not
be too much here for larger, quoted ones to get excited about, especially given the scrapping
of the tax cut.
However, BT and Spirent have taken encouragement from plans to invest in £5 billion gigabit
broadband and £510 million in 4G mobile networks, especially in rural areas, respectively.
A plan to build 40 hospitals is giving shares in construction and support services firm
Kier a lift. Kainos, a specialist in providing electronic medical records and digitisation
services, is also up, although Medica, a provider of outsourced x-ray and radiology specialists
is down on the departure of its chief financial officer, although the company has been struggling
to get enough staff to do scans for some time, so more hospitals might not necessarily be
good for earnings if it cannot increase the supply of trained radiologists fast enough.
Diageo is up a fraction on support for research and development in the Scotch whisky industry
while there are more notable moves at Balfour Beatty and Hill & Smith.
The former had already got a lift from its full-year results but the construction expert
could be in line for more business as the Government funds investment in rail networks
and stations and over 4,000 miles of road. As a leading manufacturer of crash barriers
for motorways, Hill & Smith could be expected to win its share of contracts too.
Shares in Marshalls, which makes bollards and paving slabs used in rail infrastructure,
also gained.
An individual company which appeared to get a significant Budget boost was book publisher
Bloomsbury which gained 6% on news that VAT on digital books (and magazines) would be
abolished, potentially providing a boost to sales.
Wetherspoon’s shares briefly reacted positively to the Chancellor’s commitment to increase
the business rates discount for pubs from £1,000 to £5,000, applicable for sites with
a rateable value below £100,000 in England for one year from 1 April.
The pubs sector will also benefit from a freeze in duty on all types of alcohol, although
the challenge is still getting customers through the door in the first place amid increasing
pressure on people to stay at home during the coronavirus crisis. That might explain
why shares in Marston’s and Mitchells & Butlers shrugged off the Budget announcement.
Shares in house builders largely shrugged off the Chancellor’s promise of £12.2 billion
in grant funding for affordable homes across England and his revelation that the Housing
Secretary is due to announce what he called “comprehensive reforms” of the planning
system on Thursday.
Shares in affordable homes Galliford Try did jump on the news, however, and brownfield
real estate developers St Modwen Properties is up, although Harworth is largely unchanged,
after Mr Sunak announced regeneration projects, including in the West Midlands.
Thank you for watching and I look forward to seeing you next time.