UK stocks slumped heavily and sterling plunged after Kwasi Kwarteng's mini-Budget, potentially hinting at overseas investors taking their money out of UK assets.
Shares in Taylor Wimpey (TW.), Persimmon (PSN) and Berkeley (BKG) initially jumped on confirmation of change to stamp duty, and that the Government plans to sell more surplus land for housing but then erased their gains in volatile markets.
The reduction in the cost of purchasing a first home via stamp duty changes should act as an incentive for more people to get on the housing ladder. That in turn provides the latest stimulus for the property market and gives housebuilders some welcome relief at a time when investors were starting to worry if transaction levels would fall and build costs keep rising, thereby putting a squeeze on profit margins.
Kwarteng rolled out the usual pledge to support infrastructure projects, but interestingly said the Government would speed up the decision-making process for the planning system.
Retailers may welcome a new VAT-free shopping scheme for international tourists, benefiting the high street, shopping centres and airports. British shopkeepers have been annoyed since the tax-free shopping scheme was withdrawn on 1 January 2021, so to effectively have that reinstated provides a much-needed tailwind just as everything was looking gloomy.
The weak pound acts as an incentive for tourists to choose Britain as a holiday destination as their money should go further, so to soon have VAT-free shopping strengthens the argument to come to these shores. It’s theoretically good news for London West End landlord Shaftesbury (SHB) although its shares didn’t budge on the announcement.
Sterling perked up a little in the immediate wake of the mini-Budget, moving from a low of $1.1164 to $1.1476. But that gain was short-lived and was followed by an alarming fall.
UK gilt yields surged after the Debt Management Office laid out additional issuance to fund planned government spending.
Two-year yields gained 20 basis points to 3.78% the highest level since October 2008 and 10-year yields gained 31 basis points to 3.8%.
The UK’s leading stock indices were already in a falling trend before the Budget announcement but continued to slide as the Chancellor spelled out the Government’s plans.
By mid-morning, the more domestically focused FTSE 250 index traded 1.2% lower at 18,118, with long-duration investments including real estate investment trusts among the top fallers. Recruitment stocks were also weak, perhaps indicating investor fears over near-term hiring levels globally.
The FTSE 100 traded 1.6% lower at 7,040 dragged down by commodity producers and packaging companies which is essentially the market saying it expects lower global economic growth.
