The nation waited patiently on Wednesday to receive Jeremy Hunt’s much-anticipated Autumn Statement. The Chancellor announced policies aiming to cut taxes (personal and business) and stimulate growth in British businesses. In terms of market reaction, it was fairly muted. Thankfully, there was no repeat of the volatility caused by Liz Truss and Kwasi Kwarteng’s disastrous mini-budget only a year ago.
One person likely not cheering the statement was the Governor of the Bank of England (BoE), Andrew Bailey. Given that many of the policies announced will increase individuals’ disposable income, it is hard to see them as anything other than mildly inflationary. With fiscal and monetary policy aligned over the last 18 months to tackle inflation levels not seen for 40 years, the BoE and the government are now seemingly pulling in different directions.
So, why the change of tack? With the conservatives heavily behind in the polls, this budget looks like the firing gun on their election campaign. Ahead of schedule, the government has also delivered on its objective of halving inflation this year. There were a few rumoured announcements left out this time, with the Chancellor likely keen to keep some powder dry for the Spring budget as we move closer to the election date. Given the inflation levels seen over the last two years, the unfreezing of income tax thresholds would certainly be welcomed by many of the public.
It was a short trading week for our friends across the pond as they celebrated Thanksgiving on Thursday. Despite the market re-opening on Friday, volumes remained low with many market participants there taking a long weekend break.
As we approach the final month of 2023, it seems likely that market direction over the coming weeks will be driven by November’s inflation data and the subsequent central bank response. If inflation continues to trend lower, the market could well extend the gains enjoyed since the start of the month. If, however, inflation data proves stickier than expected, we would expect sentiment towards risk assets to weaken.
John Naylor, Chartered FCSI – Head of Investment Committee