Market reaction to Autumn Statement

UK budgetThe more buoyant economic outlook for Britain that UK Chancellor of the Exchequer George Osborne forecast yesterday has sparked a less-than-homogenous response from investment managers.

UK budgetThe more buoyant economic outlook for Britain that UK Chancellor of the Exchequer George Osborne forecast yesterday has sparked a less-than-homogenous response from investment managers.

Osbourne revised his growth forecast to 2.4% in yesterday’s Autumn Statement – a Budget that also shocked many with apparent reversals in policy regarding reforming tax credits and reducing police numbers.

Nick Peters, portfolio manager at Fidelity Solutions, part of Fidelity International, is confident that higher growth in 2016-17 means there are selective opportunities within UK equities.

Peters believes that investors should favour the more globally exposed FTSE 100 over the more domestic FTSE 250. The eurozone’s continuing recovery means that there should be a greater demand in the UK’s biggest export market.

Also, the FTSE 100 has a high exposure to the commodity sector, which accounts for around 20% of index capitalisation. Peters says that this has made it “an attractive hunting ground” for value managers, who are now buying companies in the energy and basic materials sectors. Given reforms to how these companies are run, including a reduction in capital expenditure, “these sectors should do well”.

However, investment manager Schroders is not as optimistic as the Chancellor about UK growth. Azad Zangana, senior European economist, forecasts growth to slow to below 2% in 2016 due to the negative impact from a tighter fiscal policy that will impact the Bank of England’s ability to raise interest rates.

“We do expect the Bank to start the hiking process in 2016, but it may be forced to pause before reaching its neutral rate, which we estimate to be around 2.5%," says Zangana.

Should markets see higher growth, unfortunately pension savers will see less of it hit their pension pots than they could have done had. David Robbins, a senior consultant at Towers Watson, says the Budget meant yet further delays to a requirement for minimum employer pension contribution increases.

“Even with no further delays, it will now be April 2019 before minimum contributions are fully phased in. By then, it will be over 16 years since the seeds of this policy were sown when the Pensions Commission was asked to look at solutions to under-saving,” Robbins says.

Back on to the economy and Steve Blitz, chief economist at agency broker ITG, had an ominous message about where stimulus is coming from. If the UK economy is picking up, Blitz says that “recoveries built on real estate never really end well”.

©2015 funds europe