There was quite a bit to digest from Jeremy Hunt’s Spring Budget if you are an investor. The budget announcement was short of a big bazooka to kick start investment and there continue to be concerns about the lack of funding for public services to improve infrastructure, particularly skills, education and training, with the planned AI productivity boost for the NHS unclear, given potential obstacles ahead.
In this article we hear from some of the experts who have provided us with their own views on the budget in the last 24 hours.
Gilts market and UK borrowing
Hunt wanted to avoid a bond market “strop out” by sticking to his fiscal rules, and his wish was granted, with the yield on 10-year gilt yields, dropping back. It’s a pretty muted response to a budgetary hat, which was notably short of surprise rabbits. The pound dipped back a little as the Chancellor spoke with underlying worries bubbling that the plans will just lead to a sugar rush of spending, rather than laying the groundwork for more sustained growth.
Shilen Shah, Head of Fixed Income, Investec Wealth & Investment UK:
“The Chancellor’s fiscal space seems to have shrunk due to two key drivers. Firstly, the lower path of inflation along with frozen tax bands means government tax revenues are now projected to be lower as they are directly related to nominal GDP (real GDP plus inflation). Additionally, the rise in Gilt yields now means the projected future interest costs are somewhat less advantageous when compared to the beginning of the year with the 10-yr Gilt yield rising to 4.12% from 3.53% at the end of 2023.”
NatWest share sale
Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown: “There is likely to be strong interest in the NatWest share sale, which will be the highest profile public share offer since the Royal Mail IPO more than a decade ago. Giving retail investors the opportunity of a slice of ownership in NatWest is a welcome move, given that they have been left out of previous sales, which have been reserved for institutional investors.”
The UK ISA
A new ‘British ISA’ restricted solely to UK equities will be launched, with an annual allowance of £5,000.
Richard Stone, CEO of the Association of Investment Companies:
“All UK-listed shares, including investment companies, should be eligible for the UK ISA. We have more than 350 UK-listed investment companies, including more than a third of the FTSE 250. These companies provide access to diversified portfolios of equities, as well as hard-to-access assets like private companies, infrastructure and property. For any investor taking advantage of the new UK ISA, particularly those beginning their investment journey, investment companies can provide an excellent starting point.”
Jason Hollands, Managing Director, Bestinvest
“Anything that increases the amount people can invest tax efficiently, should be broadly welcomed in these taxing times, but an increase in the core ISA allowance, which has been frozen at £20,000 since 2017/18, would have been far more preferable than yet another type of ISA with a restricted range of investments. The ‘British ISA’ is a undoubtedly a victory for the City stockbrokers and bankers who have lobbied hard for it amid a drought in IPO and deal fees and a worrying sapping of companies listed in London to New York.”
Victor Trokoudes, CEO of Plum, the smart money app
“The Chancellor wasn’t clear on what reforms are coming for ISAs, beyond a British ISA. It was surprising that there was no reform of Lifetime ISAs to stop penalising people unnecessarily who have a change in circumstances and to increase the property price limit.”
Simon Harrington, Head of Public Affairs at Personal Investment Management and Financial Advice Association
“While we strongly believe in the principle that retail investors can and should be encouraged to play a positive role in supporting UK businesses with private capital, it is not immediately clear to us that the British ISA represents anything more than a policy announcement in search of a headline. We see very little appetite to offer such a wrapper while the operational burden, which this would place on firms suggests that even if appetite were there it seems unlikely that firms would want to offer it.”
Dan Moczulski, Managing Director (UK), eToro
“Anything that encourages British investment and helps revitalise the UK equity markets is a good thing, especially in the current economic slowdown. However, we must be careful not to create a framework that forces people to invest in the UK at the cost of potentially lower returns or prioritise less diverse, and therefore riskier, portfolios. For British capital markets, this is obviously a great result and they need to step up and prove that they can provide investors with returns to match their global peers.”
