WeeklyWatch – Autumn Statement offers little relief for struggling UK markets

28th November 2023

Stock Take

Takeaways from the Autumn Statement

Even though the UK Chancellor touted its achievements in his Autumn Statement, the British economy continues to cause investors anxiety, as seen by the weak FTSE 100 last week.

A notable highlight of the budget was the reduction in National Insurance from 12% to 10%, which resulted in tax cuts for about 27 million UK taxpayers. For the average worker earning £35,400 a year, this will equal around £450 in value.

A pledge to keep the Triple Lock in place and a hike in the National Minimum Wage to £11.44 per hour were two other noteworthy announcements. This means that starting in April of next year, state pensions will rise by 8.5%.

Business tax adjustments were also announced in the Statement. Beyond the original April 2026 expiration date, businesses will be able to continue “full expensing” of their expenditures on qualifying capital equipment, such as computers, software, and plant and machinery. In other words, businesses will be allowed to deduct 100% of eligible expenses from their taxable profits.

A slow-growing UK economy and a falling FTSE 100

There were limits to what Chancellor Jeremy Hunt could do, even if the Statement reforms will help consumers and businesses in what is still an extraordinarily difficult market.

Head of Economic Research at St. James’s Place, Hetal Mehta, commented:

“When it comes to giveaways, however, the Chancellor’s hand was limited, and he used up all the fiscal headroom that had become available from higher tax receipts. It is also worth noting that while the Office for Budget Responsibility (OBR) expects the Chancellor to meet his fiscal rules with a margin of £13 billion, this relies on the continued use of very optimistic growth assumptions. The OBR’s estimates of potential GDP growth continue to be much higher than those of the Bank of England.

“In other words, there is a real risk that the economy might not reach the levels of growth the OBR expects. If this were to happen, it could have a material impact on public finances.”

The FTSE 100 dropped 0.2% over the week as a whole.

Will Black Friday boost consumer spending?

Globally, stores promoted ‘Black Friday’ last week, promising bargain deals and discounts in an effort to draw customers back into shops. The success of this event may set the tone for markets heading into the Christmas month and act as an indicator of consumer behaviour.

This will undoubtedly be significant when the Federal Reserve’s Federal Open Market Committee (FOMC) meet before the year is over.

Nevertheless, American equities had a positive week. The S&P 500 and NASDAQ saw gains of 1% and 0.9%, respectively, while major constituent NVIDIA had a retracement in its shares. Even though the company exceeded both revenue and profit projections, the fall was ultimately anticipated given the conservative future forecast.

Dutch politics and growing European shares

In Europe, the Dutch elections, in which the right-wing Freedom Party (PVV) emerged victorious, rocked the political world. Approximately 25% of the seats in Parliament were held by the PVV, which was led by Geert Wilders and became the biggest party in the government. However, in order to actually establish a government, the party needs to recruit coalition partners, which might have a moderating influence.

Aza Teeuwen, a partner at TwentyFour Asset Management, said:

“Forming a workable coalition with 17 parties will be tricky and all kinds of combinations are possible, even without the Freedom Party. Whatever coalition is formed, they will all need to make significant concessions to get anything done and, with very different views on so many topics, a new election in two years could also be on the cards.

“But one thing is certain, while there won’t be a referendum, immigration will be top of the agenda. Although this was a landslide victory for the far right, I don’t see much change and looking at equities, it doesn’t seem to have impacted markets at all.”

The favourable performance of European shares may reflect this sentiment. The MSCI Europe ex. UK Index increased by 1.0%, continuing the solid pace from November. That was in spite of the Purchasing Manager Index (PMI) for the eurozone contracting for the sixth consecutive month, plus the likelihood of a recession on the continent growing.

Wealth Check

You never know when life will throw you a curveball, even if you’ve carefully planned your affairs, written your Will and prepared for long-term care. You could become unable to handle your financial matters or make critical decisions on your welfare and health if you experience an abrupt change in your health or mental state.

A lot of people think that someone close to them, such as their next of kin, will be able to take over. Unfortunately, unless you’ve already established a lasting power of attorney, that isn’t the case.

The legal procedure known as a lasting power of attorney, as it’s called in England and Wales, enables you to choose a representative to handle your financial matters in the event that you are unable to do so. This person or people will act on your behalf; they can be anybody you choose, including your partner, spouse, family or friends.

The process of setting up a power of attorney might take up to 20 weeks, according to the government website gov.uk.1 Your attorney or attorneys can easily begin making judgements right away if you already have powers of attorney in place. But if you don’t, there can be significant delays.

It’s important that you know the person or people you choose well and you have complete faith that they would act in your best interests. If your circumstances change, it will be one less thing to worry about for you and your family.

Things may get very confusing and upsetting for you and your family if you don’t have a power of attorney in place and you get to the point where you can’t make choices for yourself.

It’s easy to forget to set up a power of attorney, but thinking ahead helps prevent family members from being so taken aback if an elderly parent needs extra support quickly. It’s also important to apply for a lasting power of attorney as soon as you start having problems with your mental health capacity, as you will no longer be eligible to do so when that happens. Establishing powers of attorney in advance can help avoid issues down the road.

Advice relating to a Will or Power of Attorney necessitates the referral to a service that is separate and distinct to those offered by St. James’s Place. They are not regulated by the Financial Conduct Authority.

Source: 1ONS, accessed October 2023.

The Last Word

“While we are of the strong view that independence should be preserved, reforms are needed to improve the bank’s performance and to strengthen its accountability to Parliament.”

Lord James Bridges, Chair of the Lords Economic Affairs Committee, commenting on the critical report on the Bank of England released over the weekend.

TwentyFour Asset Management is a fund manager for St. James’s Place

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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SJP approved 27/11/2023