City largely shrugs at mild Budget
L Most plans will not affect listed firms l CBI in muted welcome to rates news
The City deemed the Budget to be “sensible, but unambitious”, with the stock market unruffled by what was seen as a pragmatic but unexciting raft of measures.
After fairly flat trading throughout the day, the FTSE 100 index of blue-chip shares ended the session off just under five points at 7,334.61.
Philip Hammond’s decision to raise taxes for the self-employed and lowering the tax-free dividend allowance by 60 per cent excited some talk around the dealing screens, but there were no major shocks for market professionals.
Connor Campbell, financial analyst at Spreadex, said of the lack of a mention of Brexit: “The biggest challenge to the UK economy for the next half a decade (at the very least) barely got a mention. The lack of Brexity news is likely why the reaction from the market has been so muted.”
Another analyst said: “The £435 million in business tax relief was good news for many small businesses, as was the emergency fund for councils to address particular business rates problem cases, but as so many of these firms are not publicly quoted it was never going to excite the City.”
He said the same applied to the 1 per cent increase in National Insurance contributions for the self-employed: “The self-employed, while entrepreneurial, do not tend to be a natural constituency of interest for financial markets.”
On the forex markets, sterling fell nearly 0.4 per cent against the US dollar to trade near $1.214, its lowest level since mid-january. But analysts said that this was on speculation of an impending US rate rise, rather than UK Budget factors.
Peter Spencer, chief economic adviser to the EY ITEM Club – the only economic forecasting agency to use the Treasury’s own economic model – said: “This last Budget was not expected to contain many fireworks and the Chancellor did not disappoint. His fiscal package was broadly neutral.
“The Office for Budget Responsibility’s economic forecast was also neutral in the sense that its upward revision to this year’s GDP growth, from 1.4 per cent at the time of the Autumn Statement to 2 per cent, was offset by downward revisions to the later years of the forecast.”
Howard Archer, chief economist at IHS Global Insight, said: “A cautious, steady overall approach is essentially the defining feature of the Budget.
“Chancellor Philip Hammond is clearly keen to keep fiscal ammunition up his sleeve – due to the major uncertainties and downside risks that the economy faces as it navigates its way out of the EU.”
The Confederation of British Industry gave a measured welcome to what the Chancellor did on business rate relief.
Carolyn Fairbairn, the CBI’S director-general, said: “The Chancellor’s recognition of the challenges posed by business rates through increased transitional relief for smaller businesses, is welcome.
“But there is no immediate prospect of more frequent valuations, or broader relief from rising business rates in a world of higher inflation, which businesses were looking for.
“Over the longer term, firms want to see a wider reform of business rates as part of the Chancellor’s efforts to create a more modern tax system.”
City analysts said the 60 per cent reduction in the tax-free dividend allowance was not a positive for investors.
But Ed Monk, associate director for personal investing at Fidelity International, said its impact was limited and would “catch a few of the wealthiest investors in stocks and bonds”.
He added: “You’ll need £50,000 invested outside of ISAS before the lower Dividend Allowance bites, according to the Treasury.
“On balance, it’s bad news for the wealthiest shareholders, but good news for those able to make the most of their taxfree allowances.”
“Over the longer term, firms want to see a wider reform of business rates as part of the Chancellor’s efforts to create a more modern tax system.”
CAROLYN FAIRBAIRN