Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

4883

Markets have muted reaction to Darling’s Budget

RELATED TOPICS​

In delivering what may be Labour’s last Budget for many years, Chancellor Alistair Darling had to placate the markets by demonstrating credibility in tackling the deficit without making spending cuts that would scare voters ahead of what may be a closely fought election. 

Peter Hensman, global strategist at Newton Investment Management, says Darling’s emphasis on the role of the state in aiding the economic recovery was intended to set the government clearly apart from the Conservatives, who are pledging vigorous action to reduce the deficit.

“An improvement in government finances is on hold until the other side of the election,” says Hensman.

The general election has to take place no later than 3 June 2010.
 
Immediate market reaction proved muted, says Duncan Jones, portfolio manager for BNY Mellon Cash Investment Strategies, with sterling, already battered in the recent past, slipping 0.9 per cent to USD1.4902, and the ten-year gilt yield rising seven basis points to 3.98 per cent amid expectations of future issuance.

With no clear medium-term spending plans, the UK goes into the election with major fiscal uncertainties remaining.

“Until clear plans are announced post election, the UK’s AAA rating remains under review,” says Jones. “The market expects gilts and sterling to remain vulnerable in the wake of the Budget.”
 
In Jones’s view, the Budget 2010 was more significant politically than economically. While Darling resisted political pressure from his next door neighbour for giveaways, the Budget is intended to provide some electoral momentum.
 
Although Darling avoided blatant electioneering with giveaways, there were some populist measures that should play well with the party faithful. Stamp duty is to be scrapped for homes below GBP250,000 for first-time buyers, while it is to increase to five per cent from April 2011 on residential property sales over GBP1m.

The inheritance tax threshold has also been frozen for four years; this is another marker also intended to set Labour apart from the Tories.

“The West Country is obviously not a Labour heartland,” says Jones, based on the decision to increase cider duty by ten per cent above inflation.

Tory leader David Cameron levelled the accusation that both the stamp duty changes and higher tax on cider had been stolen from Conservative policies.
 
Jones says Darling had a measure of “wiggle room” given that the public finance figures for February showed that borrowing is set come in below expectations. Public sector net borrowing was GBP12.4bn, a record for the month but below the consensus forecast at GBP14bn. Borrowing this year is forecast to be GBP167bn, GBP11bn lower than predicted in December. However, the 2011 growth forecast was lowered from 3.5 per cent to 3.0-3.5 per cent. 
 
The proposed creation of a new Green Investment Bank – channelling public and private investment into low-carbon infrastructure projects – chimes with the Newton theme of energy supply, according to Hensman. To date, tightness in the supply of hydrocarbon fuels and the slow progress of alternative energy technology, combined with strong growth in per capita energy usage in the developing world, point to a mounting energy gap.

Latest News

The trading and investment platform eToro has extended its proxy voting feature to all stocks..
C8 Technologies, the London-based fintech founded by former BlueCrest Capital Management partners Mattias Eriksson and..
DWS has announced the latest development in its strategic growth push in Alternative Credit with..

Related Articles

The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Pension funds
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next decade, industry research reveals...
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next..
Tim Crawmer, Payden & Rygel
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also, given that equities had a strong year last year, big funds have taken some chips off the table in equities and put them into fixed income...
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also,..
Lady justice
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI) strategies received glowing commendations from the Bank of England in its March report...
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI)..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by