WeeklyWatch – The Budget starts to make its mark

5th November 2024

Stock Take

After the UK Budget but before the US election. Are we in the eye of the storm?

For weeks, there’s been widespread speculation as to what the UK Budget would deliver, and now investors finally have their answer. UK Chancellor Rachel Reeves took centre stage in parliament last week to announce her inaugural Budget.

Have UK equities been affected?

Reeves announced a range of tax rises that will coincide with expansion in government spending. When it came to UK equity markets, the Budget didn’t cause too many issues; the FTSE 100 finished the week down only slightly, dropping 0.87%.

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

“While it was one of the biggest tax-raising Budgets of recent decades, it was also one of the biggest fiscal loosening announcements too. The government has got public spending, as a share of GDP, broadly moving sideways rather than declining as per the previous OBR forecasts and boosted investment so that the overall level of longer-term GDP will be 1.4% higher. However, most of the uplift comes in the next couple of years.

“Given the change to the fiscal rules and the definition of debt, it is surprising to see the fiscal headroom only increased slightly from the record low of the previous chancellor. Complying with the rules within a three-year horizon could give some scope for more stimulus ahead of the next election, but that will depend on how the economy performs.”

Market reactions

The UK’s AIM Index was one of the most immediate reactions to the Budget. Market investments here can potentially be Inheritance-Tax-Free; the benefit was made to encourage investments in the higher-risk market. It had been widely predicted that the government would move to scrap this benefit; instead, Reeves halved it.

This caused a needed (albeit likely to be short-term) boost for the AIM market, resulting in a 2.3% rise; most of these gains were made after the Budget was announced on Wednesday.

A renewed direction for the Bank of England?

Later this week, the Bank of England’s Monetary Policy Committee are due to meet. While the Budget isn’t expected to affect immediate interest rate decisions, medium- to long-term effects could create a gradual altering of course.

Europe struggling to stimulate economic growth

Across mainland Europe, attempts to boost economies continued to provide uncomfortable results. The MSCI Europe ex UK fell 1.2% in Euro terms, despite positive economic figures. The eurozone GDP growth hit 0.4% in the third quarter, which doubled predictions.

Nations exceeding forecasts included Germany, Spain and France, and Ireland revealed a growth of 2.0% in their GDP rate for the quarter.

Portfolio Manager at TwentyFour Asset Management George Curtis noted:

“Part of the confidence of the European Central Bank’s growth forecast – stronger growth this year than last year – came from excess savings, which European consumers held onto after the pandemic as a result of the gas crisis stemming from Russia’s invasion of Ukraine. With an unemployment rate that remains at record lows in the eurozone (it actually fell again in August), declining deposit rates and stronger consumer sentiment should drive stronger consumption, and indeed we started to see broader signs of this in the third quarter numbers with stronger domestic consumption across most countries.”

US standings before presidential election

Last week, the S&P 500 and NASDAQ slipped during a busy week among earning reports. In part, this was as a result of cautious updates from several large companies, including Microsoft.

The US job report revealed on Friday that the US economy added only 12,000 jobs last month; this is the lowest number recorded since December 2020. Despite this, it shouldn’t be read into too much, as these numbers were affected by weather incidents and strikes.

After the presidential election, the Federal Reserve is set to meet to make further decisions on interest rates. The likelihood of further cuts is high, regardless of the election results.

Wealth Check

Insuring to protect – how does that extend for your health?

Getting insurance for our cars, our home and its contents, holidays and our pets is almost a given. Many would feel uncomfortable travelling knowing that they don’t have medical insurance or letting their car insurance run out. But have you ever considered putting measures in place to protect the most valuable things of all: your family and your quality of life?

What types of financial insurance are available?

Nobody can know what’s just around the corner, and we live in the hope that the worst won’t happen to us. This is why so many different types of insurance exist to cover the things or people we love the most and for how long.

And awareness is growing. In 2023, the Association of British Insurers website reported a record number of people who took out income protection policies.1

The most widely available financial insurance measures are income protection, life assurance and critical illness protection:

  • Income protection – This type of coverage pays a percentage of your income so that you’re able to cover bills and other outgoings if you find yourself suddenly out of work, unable to work or unexpectedly lose an income.
  • Life insurance – This coverage pays out a lump sum after a death. This policy needs to be written in trust, which ensures that money can be paid without probate, therefore it won’t be liable for Inheritance Tax.
  • Critical illness – This coverage also pays out a lump sum, but only in the event that you suffer from a specific illness such as a stroke, cancer or a heart attack.

 

How does this kind of coverage help you and your loved ones?

This can be of huge help to other family members. While you can’t take out a policy on your children, you can put measures in place to help them be able to afford protection for themselves in the future.

Many people who have required time off work as a result of illness or mental health events have admitted that they’ve been forced to rely on savings in order to get them through these challenging periods, citing that the stress of this action made matters more difficult.

Emergency funds

If you’re putting aside savings for an emergency monetary fund, the recommended amount is enough to cover three to six months of expenditure. This can then act as a buffer while you’re between jobs or get through higher living costs, but it’s not a long-term solution.

Emergency funds can take years to build, but just a few days or weeks can deplete them dramatically.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Source:

1Association of British Insurers, 20 March 2024 – ‘Record number of individuals takes out Income Protection Insurance to safeguard finances’.

In The Picture

In last week’s Budget, we saw one of the largest increases in government spending in recent years, which will be compensated by tax rises and borrowing.

The Last Word

“The only way to drive economic growth is to invest, invest, invest. There are no shortcuts. And to deliver that investment we must restore economic stability.”

– Rachel Reeves, UK Chancellor, as she delivers her Budget.

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 04/11/2024