After weeks of uncertainty and speculation whether the Uk government would U-turn of their radical tax changes, the new Chancellor today confirmed many of the mini-budgets tax cuts would be binned.
Jeremy Hunt has wasted no time in his mandate to bring stability to UK assets by scrapping almost all of the measures first proposed by Kwarteng in his mini-budget.
“The simplest way to adjust the fiscal plan was always going to be to just reverse it and by and large that is what has happened,” said Guy Foster, chief strategist at wealth manager RBC Brewin Dolphin.
The FTSE 100 rallied on the news with housebuilders, banks, insurers and asset managers surging.
The housebuilders produced the most notable gains with Barratts, Taylor Wimpey and Persimmon all gaining more than 4%. Changes to stamp duty are one of Kwarteng’s mini-budget measures likely to remain.
Fears about bond market complexities for pension funds subsided with benchmark 10-year gilt yields falling below 4%. Legal & General, Phoenix Group, Aviva, M&G and Prudential were among the FTSE 100’s wealth management and insurance providers cheering Hunt’s roll back.
Short term reprieve
Despite investors stepping in to pick up bargains in sectors most heavily hit by the doomed mini-budget in September, questions still remained about the longer-term trajectory of the UK economy.
Hunt’s rollback has remedied market volatility in the short-term, but the decision to end current energy bill measures in April brings the health of the UK economy back into the spotlight.
“Markets have reacted positively to the news. However, with taxpayers back to footing the bill, it means little has been done to address the cost of living, except for a temporary cap on energy bills,” said Will Stevens, Head of Financial Planning at Killik & Co.
Today’s announcement will also do little to avert a 75 – 100 bps hike in UK rates at the Bank of Englands’s next meeting in November, piling more pressure on UK households.