MHA | The UK budget - Second-budget syndrome?

The UK budget - Second-budget syndrome?

Brendan Sharkey · March 14th 2023 · read

‘Second-album syndrome’ is where musicians who are launched to fortune and fame with a mould-breaking first album, then find the second album just can’t match those heights. It’s not just music though – it is often said that the original movie was better than its sequels while even football managers dread ‘second-season syndrome’. It turns out that the original can be a tough act to follow.

Fortunately for the Chancellor, Jeremy Hunt, he won’t have to worry about that. Whatever happens in the budget this week, he won’t be suffering from ‘second-budget syndrome’ … just don’t do what the last person did.

Usually, what happens in the budget can have a large impact on individuals and their finances, but the market outcomes can be mixed. Below are ways in which the Spring Budget might impact investors:

  • UK Inflation has peaked – targeting inflation comes under the remit of the independent Bank of England. Interest rates have risen to levels that were completely unforeseen a year ago (the base rate was still 0.5% this time last year!) which has meant inflation has peaked. In this instance though, the Chancellor can have a say on inflationary outcomes by extending the cap on energy bills until later this year. By the time the cap is removed, energy prices should be back at levels below the cap anyway. The signs are pointing towards a much more benign year in inflation than the last.   
  • The economy has skirted a recession … so far – the Chancellor will certainly claim credit for the UK has avoided a recession. While this might be true, we can’t ignore that the rate rises that we have so far seen, are starting to slow the economy. For now, we shouldn’t expect any major growth-boosting policies. Again, just don’t do what the last person did, but if the economy does contract, watch for these expansionary policies further down the road.
  • The bond market should remain calm – inflation falling, energy prices capped, growth slowing and the Chancellor keeping the powder dry … this is all the bond market wants this time around. The policies announced will be well-telegraphed, so the bond market should be prepared. Don’t expect any big moves – thankfully.
  • As should sterling – inflation has proved sticky. This is partly down to the weaker pound which has reflected investor sentiment towards the potential instability of the UK. As long as the chancellor sticks to the script, sterling should remain well-behaved. 
  • UK equities are watching world events – while we focus on the UK budget, we shouldn’t lose sight of what can matter to equity investors. These days, the UK economy is too small to matter but rather flows with events – an ongoing war in Europe, a budget showdown in the US and a reopening in China. The crosscurrent of these factors will matter more than what happens here.

It is important that The Chancellor delivers a budget that avoids upsetting the markets so that investor confidence is not shaken.

For more insights like this, visit our dedicated Spring Budget 2023 hub

You’ll find resources and practical guidance on any new tax measures and spending policies announced, to help you prepare and manage the potential impact on you and your business.

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