The main talking point in the UK is this afternoon’s budget. In the first UK Budget ever to be delivered by a woman, the Chancellor Rachel Reeves reiterated claims that the previous Conservative government had left a £22bn black hole in public finances. “The British people have inherited their failure,” she said.
The previous government’s actions were “the height of irresponsibility and they know it," she added. "They had run out of road and they called an election to avoid making difficult choices.”
Rishi Sunak, former prime minister and leader of the opposition, hit back at the £22bn figure, arguing that the OBR had not referenced it. “It’s deeply disappointing that she has sought to politicise the independent OBR, that should be above party politics.”
In a Budget that had been widely trailed, both in Labour’s manifesto and via repeated leaks, Reeves said the government had been given “a mandate to restore stability to our economy and begin a decade of national renewal”.
She insisted she would not increase National Insurance, VAT or income tax for working people, a manifesto commitment. In one surprise move, she also pledged to uprate income tax and NI thresholds, which have been frozen since 2022, adding to the tax burden, in line with inflation from 2028/29.
However, employers’ NI contributions will to rise from 13.8% to 15%. The threshold at which businesses start paying will also be cut significantly, from £9,100 to £5,000. The changes would raise around £25bn, Reeves said.
In addition, the lower rate of capital gains tax will rise from 10% to 18%, and the higher rate from 20% to 24%.
The nom-dom tax regime will be abolished from April 2025, while VAT will be added to private school fees from January 2025. Business rates relief will also be removed for private schools from April 2025.
The stamp duty land surcharge on second homes, meanwhile, will rise from Thursday to 5% from 2%.
As well as £40bn of tax rises, however, Reeves also detailed significant spending plans.
They included a commitment to fund HS2 into London Euston, investing £5bn in house building, new funding for schools and significantly boosting the NHS budget under a new 10-year plan. Day-to-say spending for the health service is set to rise by £26.1bn, while infrastructure spending will be boosted by £3.1bn.
Reeves also unveiled the OBR’s latest forecasts. The body expects CPI inflation to reach 2.5% in 2024 and 2.6% in 2025, before falling to 2.0% by 2029.
GDP growth, meanwhile, is forecast to reach 1.1% this year, rising to 2.0% next year before easing to 1.6% by 2029.
Reeves concluded: “The decisions I have taken today are the right choices. To restore stability to our public finances, to protect working people, to fix our NHS, to rebuild Britain. “If the party opposite disagrees with the choices I have made, then they must answer, what choices would they make?”
TD Macro said: “It was a big spend, big tax, big borrow budget, with an overhaul of the government’s fiscal rules. But crucially, it contained few material surprises. OBR forecasts showed stronger near-term growth and inflation, but the growth impulse is entirely driven by public sector spending, with private sector growth weaker. “At its core, the Budget threw out the old government’s fiscal rules, implementing new rules that favour bigger capital investments.”
Rain Newton-Smith, chief executive of the CBI, said: “A more balance approach to our fiscal rules, which prioritises capital investment, should help to unlock private sector investment in our infrastructure and net zero transition over the long-term.”
But she added: “This is a tough Budget for business. While the corporate tax roadmap will help create much needed stability, the hike in NIC alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest.”
The corporate tax roadmap, published alongside the Budget, pledges to cap the headline rate of corporate tax at 25% and maintain the current capital allowances systems.
Market reaction to the Budget was modest. While the pound was slightly lower across the board, the FTSE 100 was largely unchanged.
Markets analyst Michael Hewson said: “There has been a modest market reaction, largely due to the fact that some of the worst-case scenarios have been avoided. However, some of the tax increases announced are still fairly significant, pushing the total tax take to a potentially historic high of 38% of GDP by the end of the decade.”
It was a very ‘Labour’ budget but it’s now done, and tomorrow won’t look too much different.
In equities Standard Chartered rallied as it lifted its full-year guidance after a record performance in its wealth division helped third-quarter profits beat expectations. The Asia-focused bank, which is headquartered in the UK, said operating income rose 11%, or 12% on a constant currency basis, to $4.9bn in the three months to September end.
Within that, net interest income jumped 9% to $2.6bn, ahead of expectations for $2.57bn, while wealth solutions soared 32% to $694m. Standard Chartered said there had been broad-based growth across products in the division.
Group underling pre-tax profits jumped 41% to $1.8bn, comfortably beating forecasts for $1.59bn. The blue chip will also look to return at least $8bn to shareholders over 2024-2026, up from $5bn, and upwardly revised medium-term operating income targets.
Next was also in the black as it boosted guidance for both the crucial fourth quarter and the full year after the recent cold snap caused sales to surge. Updating on trading, the blue chip retailer said full price sales surged 7.6% in the 13 weeks to 26 October, well ahead of the 5% uplift it had forecast.
Next attributed the better-than-expected performance to the arrival of colder weather this year, which compared favourably to last year’s unusually warm September and early October.
As a result, Next lifted guidance for fourth-quarter full price sales to 3.5%, and full-year profits and sales. It now expects 2024/25 sales to come in at £5.02bn, compared to its previous forecast for £4.98bn, with pre-tax profits topping £1bn, at £1.005bn. That would be an 9.5% increase on the previous year.
GSK was under the cosh, however, as the drug maker’s third-quarter sales missed expectations.
On an economic data from, GDP releases from Europe and the US were all positive and better than expected.
Quarter over Quarter GDP:
France: 0.4%, better than the 0.3% expected and the prior quarter of 0.2%.
Spain: 0.8%, above the 0.6% expected.
Germany: 0.2%, above the -0.1% expected and prior -0.3%
All told, economic activity across the euro area was ahead by 0.4% quarter-on-quarter over the three months to September (consensus: 0.2%).
However, economists at Oxford Economics cautioned that growth was "boosted by temporary factors" and "should not be taken as a sign of robust momentum."
Consumer price gains in Germany were reported at an annual rate of 2.4% for October (consensus: 2.1%) after a 1.8% print in September.
On the company side of things, Swiss investment bank UBS's shares gave back early gains to trade 4% lower despite posting quarterly income of $1.4bn that nearly doubled the consensus view.
GDP in the US came in at a whopping 2.8% for the quarter which was actually slightly below the high expectations of 3% growth. Perhaps the Labour government should find out what the US are doing and do some of that!
The US economy expanded at a robust pace in the third quarter as household purchases accelerated ahead of the election and the federal government ramped up defence spending. A closely watched measure of underlying inflation rose 2.2%, roughly in line with the Federal Reserve’s target.
In the US, a rally in most big techs drove stocks higher, while data showing the world’s largest economy is holding up bolstered the outlook for Corporate America.
The Bloomberg “Magnificent Seven” gauge rose 1.2%, with Alphabet jumping 5.5% on better-than-expected sales. Those gains overshadowed a rout in chipmakers, driven by a slide in Nvidia Corp. and underwhelming results at Advanced Micro Devices Inc. Server maker Super Micro Computer tumbled 32% as Ernst & Young LLP resigned as its auditor. Meta Platforms and Microsoft Corp. are due to report results after the close.
Homebuilders rallied as pending home sales in the US saw their biggest gain since 2020. Visa Inc. climbed on solid results. Eli Lilly & Co. got hit after lowering its guidance amid lacklustre sales of its weight-loss drug.
Bond traders trimmed bets on policy easing after Wednesday’s economic reports. Treasury two-year yields, which are more sensitive to imminent Fed moves, rose five basis points to 4.14%.
Oil rebounded after a two-day decline on tightening US crude stockpiles and the prospect of more attacks in the Middle East.
Without the fall in European stocks and a somewhat depressing budget, the economic data we’ve seen this week would actually all be positive and upbeat. This may filter through to the market eventually, but sentiment seems to be the overriding factor in the market so far. Maybe the second half of the week will cheer us up.
How we're positioned on our platform:
As always our trackers are tracking at 1.5 x market rate. This has been good for the US trackers this week, but the European trackers are negative (for now). The Long or Flat's are in the main on the BUY side of the market after waiting patiently for a pullback. European equities have provided that this week and they've entered afterwards in what we hope will be a solid entry point. On our active strategies, they used the early week rally to take profits on the BUY side and when markets dipped, they bought back in.
Therefore as of right now we have a slight BUY bias on the platform but many of the active strategies are looking for a retracement in US tech from their current highs.
With lots more still to come this week, it could be an interesting end to the week.
Here's to a profitable end to this month (tomorrow) and this week.
For more insight head to www.tppglobal.io
