OSBORNE’S plans fail to excite markets, writes City Editor Martin Flanagan
Financial markets gave a low-key welcome to the Budget, applauding George Osborne’s various business initiatives and his confirmation that the slashing of Britain’s debt mountain will continue into the next parliament.
But City economists and market strategists said the Budget had not changed any underlying investor assumptions on the prospects for equities, bonds or currencies, with trading in all three virtually unmoved by the Chancellor’s performance at the despatch box.
Michael Hewson, analyst at CMC Markets, said: “I think it was a good Budget, with the standout help for business being the doubling in annual investment allowances to £500,000, and the doubling of lending for export finance to £3 billion.
“Exports, in particular, have been seen by the City as a weak spot in the economic recovery, and the Budget measure seemed to acknowledge that.
“People have talked about the strength of sterling being a factor in weak exports, but I think that’s spurious as the pound is still off its peaks of 2007. This measure was welcome.”
Jeremy Batstone-Carr, market strategist at broker Charles Stanley, said: “Overall I think the impact on financial markets is muted. The top-line figures on forecast economic growth etc were expected and flagged in advance. However, the commitment to more [fiscal tightening] is unquestionably good.”
The FTSE 100 blue-chip index was treading water at around its opening level when the Chancellor stood up shortly after 12:30pm.
Although the index later closed down 32.15 points at 6,573.13, Batstone-Carr said he felt it was unrelated to Budget measures. “I think the fall was more due to some profit-taking after two previous positive sessions. In the currency markets, the pound also remained elevated,” he said.
Richard Hunter, head of equities at stockbroker Hargreaves Lansdown, said: “At a macro level, the Budget has had little impact, particularly on the Footsie, which is rather more globally focused. As expected, the Budget was largely one of political rhetoric ahead of next year’s election.”
The British Bankers’ Association (BBA), the trade body for Britain’s banking industry, also praised the tailwind for export finance from Osborne.
Anthony Browne, the BBA’s chief executive, said export growth was vital and the organisation had consistently stressed the need for competitive pricing of export finance.
“We are pleased that the government has listened and applaud the aim to give the UK one of the most competitive export financing regimes in the world,” he said.
“It takes confidence to become an exporter. This package could be just the nudge many businesses need to compete in markets around the world.”
Meanwhile, the “dramatic” changes in ISA savings in the Budget, both in terms of the sharply increased cap to £15,000 and the new freedom to move either way between cash and equities, was welcomed by the City.
Tim May, chief executive of the Wealth Management Association, said the moves answered investors’ calls for the freedom and flexibility to run their financial affairs.
“We continue to emphasise to the Treasury that what is good for investors is good for companies, and vice versa,” May said.
“Today’s ISA reforms mean companies can attract more investment from the UK’s four million individual investors, who in turn can benefit from their growth. Everybody wins.”
Chris Cummings, chief executive of TheCityUK, the trade body for the wider UK financial services and related professional services industries, said Osborne had recognised that financial services was “the powerhouse of the UK economy”.
He added: “The Chancellor has sought to make it more attractive for people to take personal responsibility and save more for the longer term.
“That will add to the stock of capital available to fund business growth and stimulate infrastructure investment, making the UK even more attractive to foreign investors.”
Economists in the Square Mile had little quibble with the slightly upgraded growth forecasts from the independent Office for Budget Responsibility – rising to 2.7 per cent in 2014 from 2.4 per cent previously; 2.3 per cent next year; and 2.6 per cent in 2016.
Tom Vosa, at Clydesdale Bank-owning National Australia Bank, said that this lay behind “the far from huge reaction in the sterling and gilt markets”.
Vosa said it was a “neutral Budget”, with the coalition government having “gained credibility now” in reducing public borrowings, even if done more slowly and with previous economic growth softer than expected.
“There was not much to shout about,” he said. “However, I think Osborne may have decided the less he does, the better. He has learnt from the 2012 omnishambles Budget (with the later embarrassing revocation of measures such as the pasty tax).”
However, Gerard Lane, strategist at Shore Capital, said: “In some ways it was more a pensions statement rather than an economic statement.
“There’s little there that would move the dials from an economic perspective. And, regarding continuing fiscal tightening, most people in the City who understand the numbers don’t think we have had austerity for the past 12 to 18 months, looking at the cyclically adjusted public sector deficit.
“That we return to Plan A [of debt reduction] is the right thing to do, but it will be as politically unpopular as it was before.”