Richard Buxton

Sterling has a spring in its step (and so should you)

IN ASSOCIATION WITH

The “era of austerity is over,” the Chancellor proudly declared in his Autumn Budget on 29th October 2018. In the increasingly labyrinthine world of British politics, a lot has changed since this bold pronouncement: the Government has been defeated on critical legislative votes by margins of historically significant proportions; the Prime Minister has survived a vote of confidence in her leadership; 16 ministers have resigned; and MPs from both Labour and the Tories have formed the breakaway “Independent Group.”

Needless to say, this has all occurred against a backdrop of profound uncertainty over the ultimate outcome of the negotiations over the UK’s departure from the European Union.

Given these extraordinary machinations, UK equity investors might reasonably have expected a bumpy ride, and to a certain extent, as has been the case for equity investors the world over, this is exactly what has transpired. Happily though, it has not all been in vain; on the day of the Autumn Budget, the FTSE 100 index traded at 7,026 points[1].

Around the time of writing, on 5th March 2019 (coincidentally, the 10-year anniversary of the start of quantitative easing by the Bank of England), the index is at 7,183[2]. From a cursory glance, investors could be forgiven for coming to the conclusion that the UK equity market has simply taken the events of these past four months firmly in its stride.

In reality though, looking purely at the index level masks a more complicated picture, and one that UK equity investors would do well to better understand. What, if anything, has changed in the time between the last Budget and the upcoming Spring Statement?

First, the good news. The unfolding political dramas notwithstanding, from a fundamental perspective, the UK economy is in remarkably good shape. Indicative suggestions that the annual budget deficit for the year will be in the region of £20 billion should be heartening[3]; it sounds like a large number, but as a proportion of the UK’s gross domestic product (GDP), it is barely of the scale of a rounding error.

Meanwhile, higher-than-forecast tax receipts will provide a welcome fillip to the Treasury, and indeed the Government, at a time when good news has been in relatively short supply; expect more of the austerity-is-over mantra from the Chancellor when he stands up in the Commons on 13th March.

Already a subscriber? Log in

Keep reading with a free trial

Subscribe and get your first month of online and app access for free. After that it’s just £1 a week.

There’s no commitment, you can cancel any time.

Or

Unlock more articles

REGISTER

Comments

Don't miss out

Join the conversation with other Spectator readers. Subscribe to leave a comment.

Already a subscriber? Log in