UK budget overshadowed by the Brexit cloud

UK Chancellor of the Exchequer Philip Hammond has unveiled his latest budget. What did it herald for the investor?

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UK budget

Compared with the furore over George Osborne’s ‘pasty tax’ and Philip Hammond’s March u-turn on raising national insurance contributions for the self-employed, this was a rather quiet budget. Economic growth was revised down by the Office of Budget Responsibility (OBR) to 1.5% in 2017 and 1.4% in 2018. But this came as no surprise to the markets, with sterling and the FTSE 100 largely unmoved by proceedings.

It’s fair to say that relative to the showmanship and swagger of Osborne, Hammond cuts a rather less assuming figure on Budget Day (scripted gags aside), calmly drinking water, while his predecessors usually leant towards stronger beverages.

The Chancellor’s rabbit out the hat moment came at the very end of the statement, when he announced that first time buyers would face no stamp duty on properties worth up to £300,000 outside London, and the first £300,000 of £500,000 properties in London and other expensive areas would be exempt from the tax. That results in a substantial tax saving of up to £5000, and is especially significant given that stamp duty cannot be borrowed against in a mortgage.

From an investment perspective, there was little to note. The pension lifetime allowance has been raised by the 3% increase in CPI to £1,030,000, and Junior ISAs to £4260. However ‘adult’ ISAs have not seen the, admittedly generous, £20,000 annual limit change. 

With respect to incomes, the personal allowance will rise to £11,850 next tax year, with the 40% tax band moving from £45,000 to £46,350.

Overall, he perhaps did better than his enemies had hoped. Yet ultimately the Chancellor will be remembered, not for this budget, but for how the Brexit negotiations go. ‘No one should doubt our resolve,’ he proclaimed. The UK has already invested £700 million in Brexit preparations, and a further £3 billion has now been allocated.

How the market perceives the Brexit negotiations is key to sterling’s valuation, inflation figures and to GDP growth. Time will tell whether he has done enough.

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