November 21, 2017

Pegler’s market report – 21.11.17: Pre-budget chat

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (21.11.17) Business section under the title Pegler’s Market Report:

Pre-budget chat

As if the UK government didn’t have enough on its plate already, Philip Hammond has a budget to prepare.

The Communities secretary, Sajid Javid, is pushing for a major new package for house-building to be at the heart of the Budget on Thursday. Mr Javid has upped the pressure in recent weeks for Mr Hammond to spend billions of public money on new homes. Mr Javid is concerned that Baby boomers who have paid off their own mortgages should not be allowed to get in the way of the construction of homes for a younger generation “crying out for help with housing”.

There are also hints that student loans may be looked at again. But any measures granted to the young are likely to be at the expense of those older voters who have pensions, property and other assets.

Economists are pushing Philip Hammond to scrap tax breaks for research and development because they are swallowed up by high-tech companies which would invest regardless – and instead spend the money directly on projects which need the help. As much as 80pc of R&D tax credits are spent on projects which would happen anyway, the Institute for Public Policy Research (IPPR) estimates. This means almost £2bn of spending is wasted on the credits each year, and could be put to better use elsewhere.

The dollar had some wobbles following reports that a subpoena has been issued to obtain documents and emails from the Donald Trump campaign as part of the probe into Russian interference in the US election.

Troubled outsourcer Carillion has suffered another setback in its turnaround after issuing a third profit warning of the year and telling shareholders that it is likely to break debt covenants, sending its shares crashing yet again.

The company, which lost 70pc of its value after an £845m write down in July, said lower than expected margin improvements and the delaying of asset sales and a project in the middle east would drag profits marginally lower than previous expectations. Some form of recapitalisation in the New Year now looks very likely.

Royal Mail has dodged a strike in the run-up to Christmas but concessions to trade unions could bump up the firm’s costs and marketing mail revenue has been struggling in a more cautious post-Brexit ad environment.

Finally, convenience chain Nisa, that has a number of stores in Sussex, has agreed to be taken over by the Co-op, following a vote by its storeowners. But the vote was close. The Co-op needed to get 75% support, and it barely made it over the line at a meeting at Leeds United football club. Some Nisa members had argued against the deal, worried that it would damage their independence.

By David Pegler, Brighton Capital Management