Autumn Statement: ‘Lukewarm and politically driven’

Jeremy Hunt’s Autumn Statement has been branded as “lukewarm” and might not enough to shift the political narrative for the Conservatives by the CEO of one of the world’s largest independent financial advisory organisations.

 
The comments from Nigel Green of deVere Group follow the Chancellor delivering the Autumn Statement 2023 on Wednesday in the House of Commons.

He says: “This was the Chancellor’s main opportunity outside of the Budget to make tax and spending announcements and, with Labour 20 points ahead in the polls, one of the last chances for the government to shift the narrative for the Conservatives ahead of the general election.

“While some measures announced today are clearly to be welcomed, the Statement as a whole was surprisingly lukewarm.

“Despite some positive headline grabbers, including a national insurance cut of 2%, plans for 12 investment zones and a ‘full expensing’ tax cut for businesses, it’s unlikely to significantly improve the financial situation of many households across Britain and, therefore, will do little to move the political needle for the government.

“With the Office for Budget Responsibility confirming that there’s been a turnaround in the Treasury’s coffers, and with government borrowing falling and the income from tax increasing, Hunt missed an opportunity to go much further and do much more to help families and businesses.”

“No substantive changes to income tax, no changes in bands, corporation tax, or inheritance tax.”

The deVere CEO adds that there was “a general sense that the government is stressing that people’s personal finances are their own responsibility” amid emphasis on incentivising work and attempts to put money back into individuals’ pockets.

This, he says, reinforces how working alongside a financial advisor is likely to be beneficial.

“Recognising that personal finances are one’s own responsibility promotes financial independence and resilience.  Working with an independent financial advisor not only streamlines the decision-making process but also instils confidence and discipline in financial management. It transforms personal finances from a daunting task into a collaborative effort, ensuring that individuals are well-equipped to secure their financial future with informed choices and strategic planning.”

The deVere CEO concludes: “Last year the Autumn Statement was all about saving the country from economic meltdown after the disastrous Truss-Kwarteng mini-budget.

“This year’s was all about the politics ahead of the general election.

“With the fiscal headroom having doubled, Jeremy Hunt missed an opportunity to responsibly deliver more. This is not a game-changer.”

Rudy Khaitan, Managing Partner of Senior Capital, provides expert insights on the announcements made in today’s budget: 

“As the triple lock will help unlock more wealth for British pensioners, equity release products will be required to pass on more of that wealth to their heirs.

“Equity release stands out as a proactive solution that addresses the financial needs of pensioners during their lifetime. The UK equity release market has grown by 100% in the last five years and is now seeing record activity as consumers continue to feel the financial impacts of inflationary pressures and consistently high-interest rates.  

“In today’s society, many over 55s find themselves in a paradoxical situation – they are ‘asset-rich’ due to the value of their homes, yet ‘cash-poor’ with limited disposable income. Equity release offers a solution to this dilemma by enabling homeowners to tap into the wealth tied up in their homes. It can provide a much-needed cash injection to enhance their quality of life, cover unexpected expenses, or even help their families. Equity release is more than just a financial transaction; it’s a means of bridging the gap between asset wealth and living standards, ensuring that those who have worked their whole lives to build their assets can finally reap the benefits of their hard work.”

Comments from Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley) on UK Autumn Statement

Some fiscal relief for businesses:

Even though the budget, taken at face value, looks somewhat stimulative relative to our baseline, it doesn’t appear to be a game-changer. UK economic growth remains weak, with a recessionary impulse coming through. In this context, we stand by our high-conviction call that interest rates have peaked and, therefore, gilts are attractively valued (with bond prices likely to rise and, therefore, yields to fall). Our tactical positioning is moderately defensive, with more high-quality bonds and less riskier bonds and equities vs our long-term asset allocation.

The budget | Some fiscal easing: UK Chancellor Jeremy Hunt announced that he’ll cut national insurance by two percentage points to 10%, possibly somewhat more than expected. Contrary to previous headlines, there were no changes to the inheritance tax. He’ll also make business investment tax relief permanent, allowing firms to deduct spending on IT equipment, plant or machinery from taxable profits. Whether this increases investment in the economy by some £20 billion per year within a decade remains to be seen. The Chancellor also confirmed that the state pension will rise by 8.5% next April and that other benefits linked to inflation will increase by 6.7% (September’s level, rather than the lower one from October). How much support this provides to the economy is unclear, though the fiscal multipliers (which estimate  the spending impact) tend to be low. How much of this plan will stay after next year’s election is an open question, too.

The economy | A flatlined trajectory: With markets still apprehensive about a possible resurgence of inflation versus the UK economy’s weak cyclical outlook, this budget announcement was always likely to be a trade-off between a reasonable fiscal path and some economic support. Taken at face value, some of the measures, if enacted, mitigate the probability of recession (certainty of a deep one). That probability, however, remains fairly elevated, given the lagged impact of rate hikes feeding through, even though we’re talking about a relatively mild recession and perhaps a rather short-lived one. From a market point of view, there’s not much difference between a short, mild recession and a stagnating economy. The key point is that UK economic growth prospects, in the near term, appear rather shallow, though perhaps a bit less than before this announcement and the latest batch of economic data, which generally surprised our expectations somewhat to the upside.

Market implications | Quality bonds a high-conviction call: We think the budget measures and the UK economic outlook still support our call that gilts are attractively valued. As economic growth and inflation slow, we think bond yields will fall, and bond prices will increase, making it an opportune moment to lock in a decent yield for a reasonably low risk. Conversely, in our view, the additional yield of lower-quality bonds seems too small to take the extra risk, especially as markets haven’t fully dealt with the impact of past interest rate hikes, and so default rates may pick up more than expected. Our tactical view on UK equities, at this stage, is neutral. We’re neutral on sterling, too. The weaker growth rate of the UK vs the US supports a strong dollar for now. But we think the trajectory for sterling is more sideways going forward, with perhaps some modest appreciation when that growth differential (with the US slowing, too) diminishes.

Our tactical positioning | Moderately defensive: We think the Bank of England is unlikely to raise interest rates further unless there is a spike in inflation. It’s more likely to keep them at the current restrictive level before reducing them gradually from the mid to second half of 2024. We think high-quality bonds are attractive as interest rates have peaked, growth slows, and inflation eases. Therefore, we hold more government bonds and fewer riskier bonds relative to our long-term allocation. We remain invested in low-volatility equities in the US and Europe (which tend to give a proportionally higher weight to the UK). We’re also positioned with a lesser weight to US equities (slightly) and Eurozone equities (somewhat more markedly). Our single-line portfolio holdings remain biased towards investments that we believe demonstrate solid long-term growth prospects and strong balance sheets. These attributes can serve as a buffer in the event of market volatility.

Jatin Ondhia, CEO of Shojin, said: “Housing could not be overlooked today, not after Labour had made such a point of championing housebuilding as a key part of its election campaign. Hunt struck some positive notes, such as plans to make it easier for councils to fast-track applications for infrastructure projects, and potentially making it easier for houses to be converted into flats.

“But overall, this was a lacklustre statement for the property sector, with little of substance to excite those building, buying and investing in UK real estate. In the longer-term, at least, I welcome the decision to adopt the recommendations from Lord Harrington’s foreign direct investment. We must ensure the UK remains a hub for global investments, so any action to incentivise and remove friction from international investors seeking out opportunities in Britain is a step in the right direction, and the real estate sector could be a major beneficiary.”

Paresh Raja, CEO of Market Financial Solutions, said: “You cannot begrudge the Chancellor’s focus on supporting businesses and consumers with tax reforms, but from the perspective of the property market, it was a somewhat uninspired and unimaginative statement.

“Speeding up the planning process and potentially making it simpler to convert houses into flats will be welcomed by some landlords, investors and developers, but more detail is required. Meanwhile, a more drastic overhaul of the planning system seems to have been abandoned, which feels like an important oversight.

“The lack of meaningful property-related announcements is disappointing, given there had been rumours of stamp duty cuts over the weekend. Today was a real opportunity to breathe life into the market and help catalyse growth at a time when economic markets are gradually improving, but that opportunity was missed.”