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  • Writer's pictureSarah Ruivivar

Hunt's Budget Cuts: UK Markets and Pound Take a Hit


Image credits: REUTERS

UK Finance Minister, Jeremy Hunt, recently announced a significant cut in social security contributions and made business investment incentives permanent, aiming to stimulate the UK's sluggish economy.


However, this move seemed to have the opposite effect on the markets.


The pound took a nosedive against the dollar and euro, while blue-chip stocks remained in the red. However, pub shares saw a sharp rise after Hunt revealed plans to freeze alcohol duty until August next year.


The Office for Budget Responsibility (OBR) predicts UK growth to hit 0.7% in 2024, a significant drop from the 1.8% expansion forecasted in March. This downgrade in growth, coupled with the budget announcement, has left the markets reeling.


The FTSE 100 was down by 0.4% on the day, with pub owners Fuller's, Marston, and JD Wetherspoon seeing a jump in shares between 0.5-2.2%. Sterling fell by 0.5% to $1.247, compared to $1.2543 before Hunt's speech. Benchmark 10-year gilt yields were last up 4 basis points on the day at 4.142%.


Experts have voiced their concerns over the budget announcement. Charles Hepworth, Investment Director at GAM Investments, highlighted the stagnant labour force post-Brexit as a significant factor impacting the OBR's assessment. Matthew Ryan, Head of Market Strategy at Ebury, noted the limited market reaction to the budget announcement, a stark contrast to the wild market fluctuations when UK tax cuts were last unveiled by Liz Truss' government.


The budget announcement has also sparked discussions around housing. Oli Creasey, Property Equity Analyst at Quilter Cheviot, stated that while the budget aimed to increase planning outcomes and unlock bottlenecks in the planning system, it's not likely to make a significant impact right now.


Overall, the budget announcement has left the markets and the pound in a precarious position. With inflation now forecasted to remain higher for longer, consumers and businesses alike brace themselves for a challenging economic climate.



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