Budget Planning Blocks

Written by Manasij Hajra

March, 2021

In association with

A budget with a short term boost for businesses

After enduring a long year of lockdowns and daily press briefings, we find ourselves with an economy 10% smaller and a national debt burden substantially larger. It will no doubt have brought reassurance to individuals and businesses across the country to hear the latest round of fiscal stimulus measures announced in the Chancellor’s Budget. Here are three reasons the UK equity market stands to benefit.

Businesses in the retail and hospitality sector will be pleased to have been afforded the security of having the furlough scheme extended out to September, providing insurance against longer-than-expected lockdowns. Moreover, the extension and tapered unwinding of the business rates holiday will bring welcome relief, and many will hope it precedes broader reassessment of the rates regime. A whole host of retailers, from Next to Dunelm to Dixons Carphone could reap the rewards. The extended VAT cut for hospitality (to 5% until September and then 12.5% until next March) will also be a useful helping hand to those businesses hoping to open fully this summer, including the likes of Mitchells & Butlers.

The Budget contained more help for the housebuilding sector too. An extension of the stamp duty exemption for properties under £500,000 until the end of June (and subsequently £250,000 until September) in addition to a government guarantee on low-deposit mortgages for first-time buyers should provide continued impetus for the solid demand demonstrated in the housing market coming into 2021. Housebuilders with higher average selling prices – Berkeley and Countryside for instance – perhaps benefit most.

Of course, this does not come for free. With government borrowing estimated at an astronomical £355bn this year (c.17% of GDP) and £234bn next year, the Chancellor has laid out plans to rein in the public finances with a rise in the corporation tax rate to 25% (from 19%) in 2023 and a freeze in personal tax thresholds until 2026. Crucially, a distinction was made between investment and ‘current’ or day-to-day spending, with the former an attractive proposition in a low interest rate environment. Private investment clearly has an important role in this regard, and one policy that caught the eye was the ‘super deduction’, a super-charged tax incentive for business investment. We think policies such as these could create an environment in which the UK recoups the lost years of investment since the Brexit referendum and ultimately excels. Companies with strong balance sheets and large cash balances are likely to lead the charge.

We have reached a point where a few glimmers of light at the end of this long tunnel are beginning to emerge. With over 20 million people vaccinated with their first shot, and the Budget providing much-needed support for businesses across the country, the future is starting to look brighter for UK equities.

For Professional Clients/ Qualified Investors only – not for Retail use or distribution.

This is a marketing communication and as such the views contained herein are not to be taken as advice or a recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

0903c02a82b09d5c

About the author

You may also like…

J. P. Morgan managers capitalise on smaller company activity

J. P. Morgan managers capitalise on smaller company activity

A pick-up in share placings, IPO activity and beaten-up companies moving down the market capitalisation scale has the managers of JPMorgan UK Smaller Companies spoilt for choice. Georgina Brittain and Katen Patel have invested selectively with a focus on capturing the...

The long and short of it: Review of the markets in March

The long and short of it: Review of the markets in March

The UK continues to track along the government’s road map to opening up. All the statistics are moving in the right direction and the vaccination effort has been exceptional. The government has promised a review of their guidance to work from home before stage four...

Domestic smaller companies poised to lead UK recovery

Domestic smaller companies poised to lead UK recovery

A host of UK smaller companies have reported results ahead of analysts’ expectations in what JPMorgan fund manager Katen Patel deems to be the start of a strong re-rating for domestic earners. ‘The Covid-19 crisis hit UK company earnings hard last year – mid and small...

In association with