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The UK stock market has so far taken the Autumn Statement announcements without too much volatility. The FTSE 100 was down 0.5% today and fell slightly as Chancellor Jeremy Hunt was talking. Given the broad range of measures brought forward, there are various ways I can see it impacting stocks within the market going forward. Here are the main ways.
We’re in a recession
The Office for Budget Responsibility believes the UK to be in a recession. The forecast is for the economy to shrink by 1.4% next year. At a broad level, this isn’t a positive for the stock market.
However, I think most of this news was already expected by investors. I certainly wasn’t surprised by the latest figures regarding growth and employment. Therefore, I don’t see it being an immediate shock to the market. Should forecasts be revised lower (that is, worse) then this could spell trouble further down the line.
Higher tax weighing on consumer spending
The freeze in income tax thresholds means that more people will pay higher tax. One implication for this is that people will have less disposable income. For stocks related to travel, tourism and luxury goods, this could be a negative.
If I have less money in my pocket after paying tax, I’m going to cut back on non-essential goods and services.
Windfall taxes not too bad
Even though energy firms will have to pay an expanded windfall tax of 35% (up from 25%), I think it could have been much worse. With companies like Shell and BP announcing huge profits earlier this year, there was a concern that a much larger windfall tax could hit businesses. In turn this could have hampered the strategy for such firms, potentially impacting future investment.
I think this area could offer me good returns going forward. The budget today shows that the Government doesn’t want to overburden oil and gas stocks with excessive taxes. As a result, I believe this area of the stock market has good value right now.
Working with the Bank of England
The Chancellor made a point of stressing that the Government would work closely with the Bank of England so that fiscal and monetary policy can be aligned. This should serve as a boost for the stock market.
The brief market crash from the previous mini-budget meant the central bank had to step in and take support measures (such as in the bond market). It didn’t look good or give me a huge amount of confidence at the time.
Yet a commitment to draw closer together should enable mishaps like those seen earlier this year to be eradicated. It would support a smoother functioning financial system with less volatility in the stock market.
Pockets of opportunity in the stock market
Following the Autumn Statement, I think there are definitely some winners and losers. I feel energy companies should continue to perform well. Yet retailers that depend on people having high levels of disposable income could struggle. I’m going to take all the points away with me to influence my future investment choices.