12. Weekly Newsletter

The Spring Budget

The chancellor (Hunt) last Wednesday, 15th March, delivered his Spring Budget with major policy announcements featuring the introduction of free childcare for youngsters (under the age of three) as one of the key commitments targeted at bringing back people to work. Additionally, Hunt increased the annual tax-free pension allowance (from £40,000 to £60,000) and removed the Lifetime Allowance on pensions (which was at £1m). These new strategies, aimed at higher earners, are designed to specifically encourage well-paid public sector staff (such as doctors) to delay early retirements.

The government also committed to adding £11bn to Britain’s defence budget by 2027 which is estimated to represent 2.5% of GDP (a pledge first made by former PM Johnson). Included within this was £3bn for nuclear defence and the delivery of the recently renewed AUKUS alliance. Finally, tax relief was also provided on draft drinks served in pubs (starting in August), the fuel duty tax has been frozen at the temporary reduced rate and a new apprenticeship (called a ‘returnership’) programme will be created for those aged over 50 to re-enter the workforce.

Newspapers & FTSE100

The UK’s front page news cycle over the last seven days has covered a wide range of topics with a lot of focus surrounding the chancellor’s budget. Additionally, the newspapers covered the continued expansion of the AUKUS deal and Britain’s supply of nuclear submarines to Australia. Some of the newspaper front pages over the last week were:

• The Daily Telegraph: Cut-price Credit Suisse sale to stave off meltdown
• The Times: ‘Toxic’ Met faces being broken up
• Financial Times: UBS to acquire Credit Suisse for $3.25bn after frantic talks
• The Sunday Times: John Lewis eyes biggest shake-up in its 150 years
• The Sunday Telegraph: Migrant flights to Rwanda ‘by summer’
• Independent Weekend: Budget boost for Sunak – but Tories still face defeat
• The Times: Holidays hit as passport staff walk out over pay
• Financial Times: Value of global bank stocks dives $460bn after ‘week of madness’
• The Times: Hunt waves through biggest tax burden since the war
• Financial Times: Hunt defies gloom with upbeat Budget
• The Times: More free childcare to get parents back in jobs

Following the FTSE100 hitting record highs a fortnight ago (topping 8,000 points): the fallout from the collapse of Silicon Valley Bank (SVB) and Credit Suisse struggles has created a challenging weak in UK (and global) markets. On Monday (13th March), HSBC acquired the UK arm of SVB for £1 which in the prior year had generated £88m of profit. The group also had loans totalling £5.5bn and deposits amounting to around £6.7bn which will now form a part of the HSBC group. The Bank of England is expected to meet on Thursday (23rd of March) where interest rates are expected to be raised by 0.25%– although traders now believe this is less likely due to the disruption in banking.

UK To Avoid Recession in 2023

The UK’s economy last went into recession in 2020 and now the Office for Budget Responsibility (OBR) forecasts the nation to avoid a technical recession in 2023 despite predicting a 0.2% contraction. However, the economy is the expected to grow by 1.8% in 2024, 2.5% in 2025 and 2.1% in 2026. This represents a strong reversal of the previous expectation, made a few months ago, to have the “longest contraction in a century”.

Although, the OBR did reduce the medium-term growth outlook for the UK which will restrict future tax and spending changes. A senior adviser at Oxford Economics cautioned future fiscal options as being “constrained by the pressure for more public spending caused by population ageing and the economy’s low underlying growth trend”. Additionally, growth projections may be weakened if interest rates are raised above 4%, net migration falls and/or people remain outside of the jobs market.