CHANCELLOR HOPES NATIONAL INSURANCE CUT WILL PUT VOTERS IN A POSITIVE MOOD

  • CHANCELLOR HOPES NATIONAL INSURANCE CUT WILL PUT VOTERS IN A POSITIVE MOOD

    Data Sourced from FE Analytics, and Bloomberg Finance LP

    CHANCELLOR HOPES NATIONAL INSURANCE CUT WILL PUT VOTERS IN A POSITIVE MOOD

    This week Jeremy Hunt attempted to lighten the mood for voters by reducing National Insurance. The early introduction of this tax cut raises the possibility of an election in early 2024 as the Conservatives weigh up whether this is long enough for workers to feel the benefit against the potential for a rate hike if inflation stays high. The Office for Budget Responsibility’s assessment of the outlook was lukewarm at best. It expects low growth this year and next, but says inflation will take until the second quarter of 2025 to return to target.

    The outlook for the UK and the US rests in part on consumer confidence and how that translates to spending. Confidence has unexpectedly improved in the UK, but remains negative and there is another energy price hike coming in January. Meanwhile US consumer confidence has weakened slightly and some data points to a slowdown in retail spending. US markets were positive in advance of the Thanksgiving holiday and investors will be looking at whether this positivity carries through to the annual retail spending bonanza that is Black Friday.

    UK: CHANCELLOR TARGETS GROWTH AND PRODUCTIVITY IMPROVEMENTS

    Chancellor Jeremy Hunt used an improved outlook to announce a cut to National Insurance in advance of a general election campaign next year. The Office for Budget Responsibility predicts the UK will avoid recession with GDP growth of 0.6% in 2023 and 0.7% in 2024, however, it expects inflation will not return to target until 2025. A measure that allows businesses to offset 100% of capital investment in the first year is made permanent as part of 110 reforms designed to support business and increase productivity. Other measures include reform of infrastructure planning and boosting foreign investment which the Treasury hopes will increase investment by £20bn a year by 2033.

    The autumn statement also forecast lower government borrowing as a more resilient economy increased tax revenue. The OBR expects annual borrowing to fall from 4.5% of GDP this year to 3% next year. However, the drop in future borrowing was not a great as investors expected and bonds fell following the speech, driving bond yields up.

    US: MARKETS IN POSITIVE MOOD IN ADVANCE OF THANKSGIVING

    Members of the US Federal Reserve presented a united front on its recent decision to leave interest rates unchanged. Minutes from the last meeting show the bank’s voting members warning of the need for rates to remain high enough to restrict economic activity and saying the bank needs to proceed carefully to allow time for recent rate hikes to have an effect. Other central bankers including ECB president Christine Lagarde and Bank of England governor Andrew Bailey have also warned against prematurely declaring victory in the fight against inflation.

    A sharp decline in US durable goods orders caused US Treasury bonds to rise at the start of the week as investors took this as a sign of economic slowdown, despite a decline in new unemployment claims. There was a small decline in US consumer confidence ahead of the key holiday shopping weekend which starts with Black Friday. However, US equity markets were in positive mood as technology and consumer discretionary sectors led a broad gain.

    OIL: TENSION BETWEEN OPEC MEMBERS AS OIL PRICE FALLS

    Oil plunged 5% on Wednesday amid signs of tension between OPEC member states as the organisation seeks further production cuts to support the oil price. Brent Crude has fallen around 13% from a peak of $93 a barrel in September to $81 this week. The decline has been put down to a number of causes. These include lower demand as global economic growth cools combined with higher inventory levels in the US. Supply from non-OPEC members such Iran has also been increasing this year.

    Saudi Arabia has driven this year’s production cuts and recently confirmed it’s production cap will be in place until at least January. However, disagreement over how to share any additional production cuts led to speculation that Saudi may abandon its production limit. The oil price has since regained the losses and it is up slightly this week. The lower price of oil has helped ease global inflation this year and fears that the outbreak of war between Israel and Hamas would push up oil prices have so far failed to materialise.

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