March 20, 2018

Pegler’s market report – 20.03.18: Our first Spring Statement

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (20.03.18) Business section under the title Pegler’s Market Report:

Our first Spring Statement

Mr Hammond had made clear that he thought the propensity of previous Chancellors to turn their Autumn Statements into second Budgets was not a good idea and that he wanted to make only one set of tax announcements each year. Consequently, last week’s parliamentary set piece lasted only 25 minutes. While it contained no new tax or spending measures, it was accompanied by the more normal deluge of documents where the interesting detail is usually to be found.

The revamped Spring Statement saw the Chancellor unveil forecasts of higher growth and lower borrowing. Economic growth in 2017 was 1.7% according to the latest Office for National Statistics estimate. While that number is better than the Office for Budget Responsibility’s (OBR) November 2017 projection of 1.5%, it is still below the March 2017 forecast of 2%. The OBR’s November Budget estimate of 1.4% for the current year has now been increased by 0.1% to 1.5%, but for the next two years the OBR has left its growth projections unchanged at 1.3%.

The UK, the Chancellor declared, was at a turning point in its recovery from the financial crisis and he could see “light at the end of the tunnel”. He also suggested he could use some of the £4bn a year from the improvement in the borrowing forecasts, to top up spending plans in the autumn.

However, the Institute for Fiscal Studies (IFS) and the Resolution Foundation warned that the government would have little scope to ease austerity in the coming months unless the economy improves substantially. The IFS estimates the government needs to raise tax revenues by about £40bn a year if it is to maintain public spending and reduce the deficit.

A major trade war could be in the offing as the EU strikes back against US tariffs with threats to slap import taxes on hundreds of major US products.

Donald Trump’s new economic advisor, Larry Kudlow, has also intensified the pressure by claiming that Beijing hasn’t played by the rules – and needs reining in. This has done little to assuage concerns that Trump will soon launch new tariffs on Chinese imports, such as technology and telecommunications products.

Shares in pub giant JD Wetherspoon slipped after it warned that its sales could slow in the second half of its financial year and costs are creeping higher. Founder Tim Martin was banging the drum on Brexit once again, describing reports that food prices will rise when Britain leaves the EU as a “fallacy”.

On Wednesday the market is expecting strong jobs data and signs of inflation picking up in the US, which would make it likely for the Federal Reserve to hike US interest rates for the first time in 2018.

On Thursday the Bank of England also meets – they pushed up interest rates from 0.25% to 0.5% in November but has since signalled it may have to raise interest rates faster than previously thought.

Also expect full-year results from Next and Kingfisher later in the week.

By David Pegler, Brighton Capital Management