Housebuilders were the hardest hit on the day. Barratt Developments fell just over 6% on the day, while Taylor Wimpey and Persimmon were down 5.5% and 5.1% respectively, most likely on quashed expectations of an announcement about the building of affordable homes.
According to Liberum analyst Charlie Campbell, the impact of the changes to buy-to-let schemes announced by Osborne, which will see the Government retain mortgage interest relief on residential property but restrict it to the basic rate of income tax, will be unlikely to change behaviour.
But, he added, it might take a little steam out of the housing market, which may well make it more sustainable.
On the other side of the performance coin, banks rose on the announcement that the Government plans to “Gradually reduce the bank levy rate – and after that make sure it no longer applies to worldwide balance sheets”.
However, Osborne said that it would also introduce a new 8% surcharge on bank profits from 1 January 2016, which took the wind out of their sails as the day went on.
According to Osborne the rationale for this was a bid to get the balance right to ensure that the country not only raises more money from banks but also, at the same time, ensures the country remains a competitive place to do business.
Anand said the change to the bank levy, “supports the perception that the Treasury’s focus on the banking sector is “moving from driving for stability to ensuring that it plays a growing role in supporting economic growth and that the UK remains an attractive domicile for international financial institutions.”
Only time will tell if Osborne has indeed got that balance right, but it is a question that applies to more than just the banking sector.
As Neil Williams, group chief economist at Hermes Investment Management pointed out, that through a combination of welfare cuts and increases to personal tax thresholds and a national living wage, the Chancellor hopes to incentivise more people into work.
“In hard macro terms, time will tell how this trade-off plays out in sustaining what’s been an impressive UK growth-momentum. Given his aim was flagged in advance, it should not surprise financial markets,” Williams said, adding, “Other than that, with the UK’s ‘sugar rush’ continuing and a smoother path of deficit reduction, equities and conventional gilts should welcome the preservation of his growth projections, forthcoming corporation tax and bank levy cuts, and yet tenure still of the fiscal reins.”
