Budget 2021: Economy and markets

Support schemes offer some cheer for markets

London and financial services

Market response was generally positive (pic: Terry Murden)

Rishi Sunak said he wanted to level with the British public on the challenge facing the country and the economy as it emerges from the pandemic.

He said 700,000 jobs have been lost during the crisis and the economy is 10% smaller. The Office for Budget Responsibility forecasts 4% growth this year, rising to 7.3% next year and 1.7% in 2023.

There was a mixed reaction on the markets with concern over corporation tax and the challenge of kickstarting growth contrasting with furlough, stamp duty and business rates relief.

Banking stocks reacted positively to the package of measures announced to support businesses.

Barclays rose 3.6% to 168p, Lloyds was up 2.1% to 39.7p, NatWest (RBS) gained 1.7% to 188.7p and HSBC increased 1.6% to 430p.

“A stronger near-term economic outlook than previously expected bodes well for the sector,” said Russ Mould, investment director at AJ Bell.

“One of the most eye-catching announcements confirmed in the Budget was that the furlough scheme will be extended to the end of September.

“Leisure and hospitality stocks – which have been among the hardest hit during the pandemic – jumped on the news of both the furlough extension, and the continuation of a 5% reduced rate of VAT for tourism and hospitality extended to September, interim rate of 12.5% for further six months, and not returning to standard rate of 20% until April next year.”

Pub company JD Wetherspoon gained 5% to £13.09, Premier Inn owner Whitbread rose 5.1% to £35.81 and cinema chain Cineworld jumped 9.4% to 114.3p.

The chancellor also confirmed the up-to-£500,000 nil-rate band for stamp duty [in England] will finish at the end of June, rather than the end of March as planned, and that first-time buyers will get a Government guarantee on 95% mortgages.

Greig Brown, mortgage operations director, Aberdein Considine, said: “The introduction of the new 95% mortgage guarantee scheme is extremely welcome and will provide a timely boost for thousands of home buyers who have been locked out of the market for a year with lenders looking for 10% or 15% deposits.”

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House builders gained on the news, with Persimmon one of the top risers in the FTSE 100 with a 4.9% gain to £28.43. Other housebuilders including Taylor Wimpey and Barratt Developments rose 3.8% to 172p and 3.5% to 708p respectively, with Berkeley Group up 2.7% to £43.63 and Redrow rising 3.5% to 579.5p.

The Chancellor confirmed the establishment of a UK Infrastructure Bank based in Leeds to drive a ‘Green Industrial Revolution’ and support public and private projects.

Mr Sunak said the bank will have an initial £12 billion capitalisation and expects to support £40 billion of projects, funding the likes of big offshore wind projects. There will also be a new retail savings product to give savers the chance to support green projects.

Initial share price reaction from renewable infrastructure funds was relatively muted, with John Laing Environmental Assets edging just 0.6% higher to 114.7p, Greencoat UK Wind up 1.2% to 130.1p and The Renewables Infrastructure Group just 0.3% higher to 130.2p.”=

Budget 2021 reports here

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