When is the Autumn Budget?
What could be in the statement?
In short, spending is likely to be cut, and taxes go up. Let’s take a closer look:
Benefits and pensions – will these go up in line with inflation? Will the government stick to the triple lock? So far, Rishi Sunak hasn’t confirmed this.
CGT & dividend taxes – These could be lifted, which would be a blow to business owners who pay themselves dividends rather than salaries. Small business form the basis to the UK economy so this could be widely felt.
Income tax – The government could freeze the levels of tax rates will be frozen which could see many people being drawn into the net higher tax rate.
Windfall taxes- The government could increase taxes on the profits of energy companies.
Social care- the cap on social care costs could be delayed
No sector is safe. Public spending cuts are expected to impact almost all areas of the public sector including education, the police. However, the NHS is expected to be safe.
The pound is often closely watched on budget day, with its moves reflecting the outlook for the UK economy. While the pound has risen firmly from the Liz Truss record lows, the sterling could struggle to make further headway.
The measures put in place by the Chancellor will add to the squeeze that households are already feeling. With inflation elevated, interest rates rising, and tightening fiscal picture; the statement could well be a catalyst for sending the sterling lower. The recent rally in GBP/USD, up over 3% across last week, has been a US dollar story. The outlook for the UK is gloomy and could deteriorate further as the Chancellor looks to adopt measures that are likely to limit discretionary spending further and potentially prolong a recession..
The pound is also likely to keep a close eye on the OBR’s forecasts which are expected to make for grim reading. How similar will they be to the BoE’s forecast? In November’s forecasts, the UK central bank sees GDP contracting -1.5% in 2023 and -1% in 2024. Inflation is expected to peak at 11% this quarter before starting to fall midway through 2023. The 2023 average inflation forecast is 5.5%, and 2% in 2024.
A grim outlook could pull GBP/USD back towards 1.15 and back into the multi-month falling channel. Any push higher in GBP/USD is likely to be a dollar story.
The statement is unlikely to be positive for many sectors of the market.
Energy stocks -Any mention of higher windfall taxes could impact energy firms on the FTSE, which have enjoyed a solid run higher across this year but have fallen away from year-to-date high.
Retailers, which have struggled this year amid higher energy prices, rising wages, and surging costs, could come under further pressure as the squeeze on the consumer intensifies.
Housebuilders’ recent Q3 results have shown us that cracks are appearing in the housing market. Cancellations are rising and prices are forecast to fall anywhere between 8%-20% over the coming year. The Chancellor is not expected to help the housing sector. Dire OBR forecasts, particularly a high inflation forecast, could drag housing stocks lower.