Market Update – Autumn Budget 2024.

The wait is finally over.  It has been decades since a government’s budget statement has been so anticipated, let alone so pessimistically anticipated given all the doom and gloom that has emanated from numbers 10 & 11 Downing Street and endless debates on individual fiscal measures.

Although right off the bat we got the full extent of the fiscal pain, with £40 billion of tax increases, in the end we can all breathe a huge sigh of relief, as it appears that the Chancellor of the Exchequer, Rachel Reeves has deployed the tried and tested technique of setting expectations low in the run-up to this budget and then beating them, with announcements from fuel duty to inheritance tax coming in less tough than expected.

This was because Rachel Reeves has opted to fund £25 billion of this tax increase from higher employer National Insurance contributions.

The impact of these additional costs will be especially seen by retailers, such as Tesco (which is one of the largest UK’s employers with over 260,000 UK based staff) along with leisure companies, such as Whitbread (the owner of Premier Inn Hotels) which has around 35,000 employees across its UK hotels and restaurants.

The ‘my wealth invest’ app will be available to clients who hold investments with my wealth, which is a trading name of Wealth at Work Limited, part of the Wealth at Work group.

While individually we won’t directly feel this higher tax, there is the obvious worry that, when combined with the increase in the minimum wage, companies could either pass these higher costs back to us by way of higher prices (which is inflationary); make redundancies (and thus slow the UK’s economic growth); or limit future pay increases (sub-inflation increases will further squeeze our disposable income).

Interestingly, Rachel Reeves appears to have been helped out by the rosy outlook painted by the Office of Budget Responsibility (OBR), particularly when one compares their economic growth projections to those by the Bank of England (BoE):  the OBR has UK GDP growing at 2% in 2025 and 1.8% in 2026, which compares to the BoE forecasts of just 1% and 1.3% respectively – and obviously Rachel Reeves would have had far less money to play with if her numbers were based on the BoE forecasts!

Unfortunately, the financial market’s reaction has been mixed:  as Rachel Reeves progressed through her budget statement, UK equities thankfully reversed the losses made when she announced the £40 billion tax increase, however, the cost of government borrowing (gilt yields) continued to increase and is now over 0.50% higher than it was just after Kier Starmer’s gloomy Downing Street rose garden speech – and as the gilt yields impact the cost of other lending products we could see the cost of mortgages increase.

Kate Mimnagh, Portfolio Economist