Automotive quips, support for new, cleaner car technologies, and some deft salesmanship from the chancellor aside, this Budget was motivated more by political concerns than economic ones. For investors, opportunities remain, but now is the time to be highly selective
Some 364 days ago, I sat down to pen my thoughts on Philip Hammond’s first – and last – Autumn Statement. Excerpts from the introductory paragraphs read as follows:
'It is, arguably, possible to have too much excitement in life, and so for some of us at least, the relatively sober nature of the 2016 Autumn Statement will have come as welcome relief […]
'The chancellor was of course keen to point to IMF forecasts showing that the UK remains on track to be the world’s fastest growing major economy […]"
But his introductory remarks also quickly turned to the UK’s well-documented productivity gap, challenges in the housing market and regional disparities.
So, what has changed? Clearly, the claim can no longer be made that the UK is on track to be the world’s fastest growing major economy.
Some might be tempted to blame this entirely on a challenging start to the Brexit negotiations, and these have clearly been a headwind. In reality though, the deterioration in the outlook for GDP growth is itself more a function of the ongoing challenge of the UK’s lamentably weak productivity, as reflected in today’s downgrade in the productivity outlook by the Office for Budget Responsibility.
But, despite these headwinds, the muted initial reactions of both the pound sterling and most areas of the UK stock market show that investors were, by and large, correctly anticipating a 'balanced' budget of the type expected from a chancellor known for his cautious approach.
There were once again few, if any, big surprises, Hammond’s ability to announce crowd-pleasing giveaways being hampered by an obviously straitened economic outlook.
A clear bright spot is the removal of stamp duty land tax for first-time homebuyers up to a property purchase value of £300,000, or on the first £300,000 of properties valued up to £500,000 in particularly expensive parts of the country. Indeed, I believe this should be a more effective mechanism to reinvigorate housing transaction volumes than the Help to Buy scheme.
That said, I would have welcomed a more radical solution, perhaps targeting the clear challenge of the vast number of oversized and often unsuitable homes owned and occupied by members of older generations who would, in many cases, gladly “downsize,” were it not for the punitive costs of doing so.
Autumn Budget 2017 has been called in some quarters 'a Budget for millennials', and the housing measures announced today, in addition to a gimmicky new railcard scheme for the under 30s may well help improve the Tories’ dreadful poll ratings among the nation’s younger voters.
In practice though, the housing measures, in addition to others such as the additional cash for the National Health Service, are designed more for their political appeal than for their potential to breathe new life into the UK economy.
Meanwhile, the Bank of England continues to tread a challenging path as it attempts to convince the markets that it will pursue a policy of interest rate normalisation that would hardly be supportive for most businesses.
From an investment perspective, my view is that this Budget changes very little. Hammond may have used a little sleight of hand (the reclassification of housing associations being an obvious example) to give himself a little headroom at this juncture.
In practice, however, he appears to have kept the vast majority of his powder dry, cognisant that there may well be a time, as Brexit approaches, when more radical action is merited. In the meantime, and notwithstanding the Chancellor’s desire to 'show the nation a good time', those hoping to speed off into a glorious sunset may want to leave their driving apparel in the glovebox just a little longer.
Richard Buxton is chief executive of Old Mutual Global Investors.