We asked our independent economic consultant Peter Stanyer for a brief overview of his first impressions.
- A business friendly Budget, which will help employment.
- Tax deductibility of child care costs will also help employment.
- It supports current high levels of house prices by subsidising mortgages (which is probably not a good thing in the long run) but by directing first time buyers towards new build homes, it will help the construction industry and employment.
In a hostile environment, the Budget offered about as much as could be hoped for. By the time of the next election, growth will probably still be disappointing, the deficit will still be depressingly high, but unemployment may be much lower than many might have feared.
Will there be knock on effects?
Cyprus is now the fifth eurozone country to require a bail out to recapitalise the country’s banking sector.
One of a number of measures currently being proposed is a one-time tax on bank deposits, which will unnervingly extend to deposits below the €100,000 compensation limit and ‘guarantee’ which applies across Europe. Savers will be ‘compensated’ with bank equity as well as bonds linked to natural gas revenues, but this has not eased the anger that many Cypriots (and ex-pats) feel.
Reaction to the bail-out plan has been mixed with Germany not surprisingly in favour of the plan, whereas Russia is strongly opposed with President Vladimir Putin calling the measures “unfair, unprofessional and dangerous”.
A downgrade that’s more a reminder than a surprise
According to Peter Stanyer, our independent economist, the downgrade simply reminds us that economic progress has been disappointingly slow. We asked Peter to put Moody’s downgrade into perspective and explain what it really means.
An economist’s view: Peter Stanyer
This Autumn Statement from the Chancellor is in effect a mini-budget. There were important announcements about the detail of tax, but from an economic perspective, the main message was “more of the same”, with further downgrading of forecasts for future growth and for cutting the budget deficit.
Mixed news for pension holders
For those already drawing down income…the good news
As you will know, the lower drawdown limit that came into force from April 2011 together with plummeting gilt yields dramatically reduced the income pensioners could take each year.
In his Autumn Statement, Osborne has said, “I have listened to concerns from pensioners about drawdown limits”. He then went on to announce that the capped drawdown limit would be raised from 100% to 120% of the equivalent GAD annuity rate – reversing the changes that came into force in April last year.
It is easy to get weary with the Euro soap opera of never ending last chance summitry. But last week’s episode may have been an important positive turning point. Commitments were made that represent necessary steps on the road to ensure the survival and eventual success of the Euro.
Meanwhile the Olympic torch heads past FPC
As the UK heads towards the Diamond Jubilee weekend, most of the population will be focused on the progress of the Olympic torch and the prospect of an extended weekend!
But in Europe, all eyes are are focused on Spain, Greece and Ireland
Spain is under scrutiny, following the Spanish government decision to inject £15bn into its fourth largest bank, Bankia. Spain’s borrowing costs are now at 6.7%.
Today, we also see the Irish voting on whether to ratify the EU’s Fiscal Pact. The result may reflect another public outcry against austerity, but in reality with only 12 of the eurozone states needing to ratify it, the outcome is not necessarily critical.
What is critical is the emergence of a joint solution to reconcile the need to address the deficit with the desire to stimulate growth.
What does this mean for investors?
The pro-business sentiments may well encouraged big businesses to push more of their profits through the UK and this can only be welcomed.
We asked Peter Stanyer, our independent economic consultant to share his view of the Budget and consider its implications for the economy and investors.