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The 2017 Budget at a Glance: What Does it Mean for Investors?

Investors

Chancellor of the Exchequer Phillip Hammond today delivered his eagerly awaited budget. Well, ‘eagerly’ is perhaps exaggerating things as it was always expected to be conservative with the man in charge of the country’s finances constrained by a tight budget. The budget delivered has been described as ‘gloomy’ in some quarters but given the circumstances it was never going to be a bonanza year.

There weren’t any big surprises but the headline news on the positive side of things is that stamp duty has been abolished for first-time property buyers making home purchases of up to £300,000. First-time buyers buying a property with a value of up to £500,000 will still also receive the stamp duty discount on the first £300,000. The other big news is that the tax-free personal income allowance threshold has been raised to £11,850 and the higher rate will now be paid on annual income over £46,350. The national living wage, previously known as the minimum wage, will also be increased from £7.50 to £7.83 an hour from April next year.

Investment in housing, technology and a forecast reduction in the national debt announced were met with cautious positivity though buy-to-let investors have been hit again with capital gains tax raised on investment properties. The key change is to “indexation”, which is a break allowing tax on profits on the sale of a property to be reduced depending on the duration of ownership. This will be frozen from January 2018 meaning that after that date holding investment properties for longer periods of time will no longer bring capital gains benefits.

However, what is the initial response from experts on what the budget means for the economy in the UK, investment and financial markets? The Independent got some off-the-press responses from some high-profile figures in the world of finance, investments and the economy:

Neil Birrell, chief investment officer, Premier Asset Management doesn’t believe the budget announced will lead to any major reaction in the markets though he does think the downgrade to economic growth forecasts and the Chancellor’s reference to higher inflation expectations will be mildly negative for the pound. Expectations on further rate rises next year will also be tempered which will have some positive impact on equities and bonds. Overall, he believes the economic outlook for the UK ‘remains a concern’.

Jeremy Cook, chief economist at WorldFirst, responded with the following statement:

“We are of the belief that Brexit and the performance of the UK economy will live and die via investment and trade. Today’s announcements have done little to assuage our fears on the first while we wait on progress on the second.”

Head of money at comparethemarket.com, Shakila Hashmi, was positive on the steps taken to address the growing wealth gap between the generations in the UK and the focus on housing, saying:

“Significant house building, combined with meaningful reform to stamp duty, are major steps to bridging the home ownership gap between old and young in this country.”

Finally, Kathleen Brooks, research director at major spread betting and CFDs broker City Index, was a little more controversial and expressed an element of doubt as to the extent of pessimism on growth forecasts. She commented “perhaps the bar is being set too low so that the Chancellor can exceed them easily in the coming years? The market will not be fooled.”

This is an interesting take on things, suggesting a level of Machiavellian subterfuge on the part of the Chancellor that presumably he will hope, if the accusation has merit, to gain future political credit by beating overly-pessimistic forecasts. Her argument was underpinned by reference to Bank of England forecasts for the UK’s economic growth which are more positive.

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Paul

The author Paul