Pulling back from the tax credit cut plans to some extent should help the UK consumer story, leaving many families with more to spend than they might have had if George Osborne had gone through with the proposals.
The reasonably rosy projections on government borrowing requirements and economic growth were the most significant aspect from an investor’s point of view. The improved numbers provided important reassurance to shareholders in British companies, given concern had been building that borrowing levels may be getting a touch out of hand once again.
The market reaction to the Statement was positive if unspectacular, with the FTSE 100 heading towards the close of trading at around 1% higher than it started the day.
Mouhammed Choukeir, chief investment officer at Kleinwort Benson was one professional investor who saw positives for UK equities in the Statement.
“George Osborne’s much desired fiscal prudence comes at a time of serious global headwinds,” he said. “But the UK equities market has proven resilient to a range of destabilising factors over the past 18 months. European debt crises, Scottish breakup fears and UK election uncertainty have all been overcome. We continue to believe that UK equities are an attractive asset class, but have reduced our exposure as we recognise the bull market to be at a mature stage.”
Choukeir was less optimistic on bonds, but not overly concerned. “We believe the path for fixed income is generally more challenging, and remain short duration in our government bond holdings. Nearly all UK financial assets can be adversely affected if the monetary policymakers get their timing wrong, but in a multi-asset context, fixed income investments continue to provide important diversification from positions in other asset classes,” he said.
