Weekly podcast – Market overview
This week’s podcast, hosted by Antony Webb, Investment Manager and Deputy Head of MPS, covers a range of the week’s news stories including comments about inflation from a member of the Federal Reserve, interest rate movements, Chancellor Jeremy Hunt’s Autumn Statement and the impact of a recession on the property sector.
This is a marketing communication and is not independent investment research. Financial Instruments referred to are not subject to a prohibition on dealing ahead of the dissemination marketing communications. Any reference to any securities or instruments is not a personal recommendation and it should not be regarded as a solicitation or an offer to buy or sell any securities or instruments mentioned in it.
Market overview – Alan McIntosh, Chief Investment Strategist
UK chancellor Jeremy Hunt announced a series of measures aimed at repairing public finances and the UK’s credibility in financial markets in his Autumn Statement. The government will raise taxes by £25bn and cut spending by £30bn by 2027-2028, marking a near $100bn swing compared to Kwasi Kwarteng’s expansionary mini-budget which roiled the markets less than two months before.
The contrast in the chancellor’s fiscal plans to those of his predecessor was stark, encapsulated by the treatment of income from top earners. Whereas Kwarteng planned to abolish the 45% additional rate all together, Hunt chose to lower the threshold at which the rate kicks in, from £150,000 to £125,140, effective from next April. This means anyone earning over £150,000 a year will pay an extra £1,243 income tax per year.
Fiscal drag will also increase tax revenue with several key thresholds frozen, rather than increased in line with inflation. The tax-free personal allow will remain at £12,570 and the higher-rate threshold at £50,270, meaning around three million people will be paying higher rates of income tax by 2026, according to analysis by the Institute for Fiscal Studies. The Treasury is also looking to raise at least £0.5bn from the decision to freeze the inheritance tax nil-rate band to 2027-28 – two years longer than previously planned.
Investors will also be worse off, with capital gains allowances cut by more than half to £6,000 from next April and then halving again to £3,000 from April 2024. The tax-free dividend allowance will be reduced in a similar fashion, cut from £2,000 to £1,000 from next April and then halved again in April 2024 to £500.
Despite some speculation that the triple-lock on state pensions may be broken it was maintained, meaning that pensioners will receive a 10.1% increase next April. One of the only mini budget measures to have survived intact is the treatment of stamp duty, although the current treatment will now only remain in place until 31 March 2025. That means that until then stamp duty only begins to apply in England and Northern Ireland above £250,000 and that first-time buyers are exempt on paying the tax on the first £425,000 of their purchase.
Overall, there were no great surprises in the Autumn Statement as it had been well telegraphed that Hunt would deliver a return to austerity after the fallout from Kwarteng's expansionary fiscal plans of unfunded tax cuts. The market seemed to take the fiscal update in its stride with a welcome absence of any real volatility and there were none of the wild swings seen which followed the mini-budget. The UK 10-year gilt ended last week with a yield of 3.23%, down 13 basis points on the week and around 140 basis points from its year-to-date peak made shortly after the mini-budget.