UK's Spring Budget Preview

UK corporates are keen to receive Jeremy Hunt's Spring Budget announcement, which could impact tax policies and economic incentives. However, questions remain over whether the proposed changes will be sufficient.

A Balancing Act

Chancellor of the Exchequer Jemery Hunt will present his proposal for spending to the UK Parliament on Wednesday against a backdrop of economic uncertainty ahead of the general election. While the UK officially entered a technical recession in late 2023, some analysts speculate that growth has recently resumed and may continue. On the other hand, others believe that more needs to be done to strengthen business confidence and address the issue of stagflation. Energy policy looks set to feature prominently, with speculation that the Chancellor may address the windfall tax to home insulation to appeal to voters.

Businesses have expressed cautious optimism as the government seeks to stimulate growth and improve revenues to offset more popular tax cuts. Proposals to permanently expand tax deductions have some merit but would likely require tax increases elsewhere, such as on business-class air travel. The Treasury declined to comment on speculation until Mr Hunt's statement to Parliament.​

Time for a Turnaround?

Analysts suggest the Spring Budget presents an opportunity to implement targeted measures to stimulate business growth and recharge the economy. However, it is expected that the Office for Budget Responsibility (OBR) figures are expected to show only around £10-15 billion available for measures such as tax cuts, a key priority of Conservative MPs. As a result, others propose that the budget will likely be prudent. For example, in autumn, then-Chancellor Hunt announced a cut to National Insurance contributions (NIC), with speculation of reductions up to 2%. But a 2% reduction would equate to £13 billion in lost revenue, so a 1% cut is viewed as a more probable outcome.

The concurrent publication of the OBR's economic and fiscal forecasts could also impact markets. Previous projections showed inflation persisting well above target for an extended period, alongside a generally pessimistic outlook for growth. An adjustment in the perspective may shift expectations around when the Bank of England (BOE) will move to ease policy. The Spring Budget may buoy UK-based firms slightly if it alleviates tax burdens, particularly energy and home builders, which could benefit from targeted measures given housing and energy costs are large drivers of inflation. However, analysts do not appear optimistic the budget will catalyse a significant turnaround.​

FTSE in Tightening Triangle

In the long term, the FTSE 100 appears to be consolidating, forming a triangular pattern characterised by higher lows and lower highs. If the index is able to remain above 7460, a break above 7770 could provide an opportunity for further gains towards 7900. However, the inability to hold the support could increase downward pressure, with 7260 the next key level of interest should we witness a decline below 7400.

Source: SpreadEX / UK 100

Key Takeaways

Chancellor Jemery Hunt will present his proposal for spending to the UK Parliament on Wednesday against a backdrop of economic uncertainty ahead of the general election. Despite some analysts speculating that growth may continue, others believe that more needs to be done to address the issue of stagflation, with all eyes focusing on energy policy. Although businesses have expressed cautious optimism, analysts are not too confident the budget will lead to a significant turnaround.