FTSE holds its ground as Chancellor prepares for Brexit and the end to austerity

Russ Mould
29 October 2018

“The Budget failed to make a significant impact on the London stock market with the UK-focused FTSE 250 index moving up slightly during the start of Chancellor Philip Hammond’s speech, before giving up all of these gains and more,” comments Russ Mould, investment director at AJ Bell.


“While the index closed the day 1.17% higher at 18,566, all of the gains were ultimately attributable to this morning’s session.


“Hammond was particularly bullish on the economy and the state of employment, and he said austerity was ‘finally coming to an end’. The 2018 economic growth forecast was upgraded from 1.3% to 1.6% and public borrowing this year is expected to be £11.6bn lower than forecast in March.


Retail


“The Chancellor today unveiled a raft of measures designed to help consumers and to revitalise the high street, although ploughing through the budget document it’s hard to see which individual stocks might benefit from ‘Fiscal Phil’s’ largesse.


The big news is that the individual personal allowance will rise from £11,850 currently to £12,500 from next April, a year earlier than scheduled. Similarly the threshold for higher-rate income tax will rise to £50,000 as of next April.


This will be a welcome relief for consumers who are seeing food and fuel price rises eat into any pay gains they may have seen this year.


Saying that, the Chancellor froze the increase in fuel duty for another year, saving car drivers an estimated £1,000 and van drivers an estimated £2,500 annually. 


There was also a range of initiatives designed to help the UK embattled bricks-and-mortar retailers such as Debenhams (DEB) and Marks & Spencer (MKS).


In line with leaked figures there will be a £675m Future High Streets Fund to underwrite strategies to re-invigorate the traditional retailers and to finance the actual physical infrastructure including local transport.


The aim is to increase footfall on the high street which has fallen continuously over the last couple of years according to analysis from the British Retail Consortium, BDO and Springboard.


This initiative is coupled with a unilateral digital sales tax aimed at global retail platforms which in the Chancellor’s words ‘create value in the UK’ but aren’t paying their share of taxes.


The tax is projected to raise £275m in its first year, starting in April 2020, rising to £400m per year by 2023-24. While laudable, it’s hard to imagine Amazon, Ebay or their peers quaking in their boots at the thought of such a levy.


The Chancellor insisted the digital sales tax wasn’t a tax on online sales. Instead, it said the initiative was aimed at specific digital models. The Budget report confirms the affected industries as ‘search engines, social media platforms and online marketplaces’.


Infrastructure


“A £30bn investment in infrastructure is theoretically good news for numerous London-listed companies which are active in roads and bridges.


Hammond had already announced at the weekend Britain’s biggest ever single cash investment in the country’s road network, hence why some of the potential beneficiaries saw their share prices rise as soon as markets opened on Monday rather than during the Budget speech.


Balfour Beatty (BBY) rose 2.9% to 258.1p, Hill & Smith (HILS) jumped 4.8% to £10.00 and CRH (CRH) advanced 1.9% to £22.11.


The Chancellor said the Government would abolish the use of PFI and PF2 for funding future infrastructure projects, but would honour existing contracts.


Investors will be watching various infrastructure investment trusts tomorrow once the market reopens for any comments on this announcement. Shares in 3i Infrastructure (3IN) and International Public Partnerships (INPP) were both flat as the market closed on Monday.


Pubs


Pub operators should be pleased that duty on beer and spirits is being frozen. They should also benefit from news that the government is looking to reduce ‘unnecessary red tape’ and lower the cost of wedding venues. Reports suggests this means making it easier to holding weddings in pubs, hotels and restaurants.


Gambling


“Remote gaming duty will increase to 21% to compensate for the loss of revenue from fixed odds betting terminals where stakes are being cut to £2. That is less severe than many people had expected which suggests that bookies could fly on the stock market tomorrow, given how they had been heavily sold-off in the preceding few days amid market speculation over the tax.


The gambling tax announcement came just before the market closed on Monday with GVC (GVC) and William Hill (WMH) both experiencing a tick-up in share prices at the last minute.


Defence


“Other potential beneficiaries of the Budget include cyber security stocks and defence experts amid news that the Government will give the Ministry of Defence an extra £1bn to boost cyber capabilities and at-sea deterrents.”

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