18 November 2022

Austerity 2.0?

The pound fell after hearing Hunt’s Autumn Budget. What other impacts did it have on the markets?

This has been a big week for news. Aside from the G20 meeting taking place in Bali, Chancellor Hunt delivered his autumn budget statement, Donald Trump has announced he is to run for President in 2024, inflation in the UK has topped 11% and we’ve had labour market statistics suggesting unemployment is starting to rise. Admittedly the increase on this occasion was quite small, but the Bank of England has warned that this could be just the beginning of tougher labour market conditions.

The approach that Rishi Sunak’s administration was likely to take in order to deal with the gap in the public finances was well signalled in advance. The surprise leap in the cost of living numbers will not have made the task of bringing inflation down while avoiding a deep and lengthy recession. But it seems that Jeremy Hunt is prepared to live with a contraction in the economy as he taxes everyone more in what felt more like a socialist budget than one from a Conservative Chancellor. It will be interesting to see what grass roots Tories make of it all.

Amongst the other news emerging this week was that Paris has overtaken London in terms of the size of the quoted stock market. While London will doubtless be disappointed (and I imagine Paris is positively ecstatic), I’m not sure this means a great deal. Aside from anything else, major stock exchanges tend to be dominated by multi-national companies which can vary where they list at the whim of the management. Australian mining giant BHP, as an example, delisted from the London Stock Exchange at the beginning of the year.

Markets meanwhile have held up remarkably well, even if there was a wobble in the wake of the autumn financial statement. There have been up days and down days, but confidence has held up reasonably well. And this despite a deteriorating global economic outlook and continuing geo-political concerns. Bear in mind, though, that markets anticipate events, so perhaps the prevailing view is for things to improve sometime next year. Certainly, there is some hope that these latest inflation figures, bad as they are, could represent the peak.

The festive season will soon be upon us and it could be that investors are anticipating the traditional Christmas rally. Quite why markets tend to rise during December is far from clear. It is more likely to be professional fund managers balancing their portfolios for the end of the year than any sense of good will. For some reason, portfolios have a tendency to accumulate cash by the year end which needs to be invested. Let’s hope it’s a Happy Christmas for markets.

Brian Tora     

Bespoke Discretionary Portfolio Management

Discretionary Portfolio Management

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