UK Chancellor's Spring Statement Preview

There is a lot of expectation around potential policy announcements in the Spring Statement, but will Chancellor Sunak deliver? And, if so, which sectors are the most likely to benefit?

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The new paradigm

Usually, the Spring Statement is an unnoticed affair when the Chancellor updates fiscal figures at the half-year mark. Traders take note of things like changes in economic growth and inflation projections.

This time around, there is a possibility that Chancellor Rishi Sunak will announce new measures to help British taxpayers struggling with rising prices.

A lot of focus has been on the high price of energy and fuel, which is expected to continue to remain elevated given the uncertainty around the Ukraine conflict. Headline inflation was last reported at 5.5%, but the core inflation rate, which strips away those two volatile elements, was at 4.4%. This is over double the BOE's target.

What can Sunak do?

There are a few policy options that the Chancellor could announce. Those include:

• Cut fuel duty. Reportedly, Sunak is considering cutting fuel taxes by 5p/litre. The move is generally accepted by the Opposition who are calling for 7p/litre.
• Raise pensions. Last September the government suspended the "triple lock" that causes automatic readjustment to pensions, because of the fast increase in wages. Some analysts have guessed that reinstating the readjustment to keep up with wages might be reintroduced.
• Boost benefit payments. There has been some speculation that Sunak could propose changing the mechanism where Universal Credit benefits taper off, offering an increase in income to some lower-income households.
• Delay rise in national insurance. Many business leaders have called for holding off on the 1.25ppt rise in National Insurance, which is intended to boost the capacity of the NHS. However, Johnson and Sunak wrote an op-ed back in January arguing the measure was necessary.

Which stock sectors to look at?

The gist of the measures would be to provide additional cash for UK consumers to spend, so the consumer discretionary sector. Next plc, Whitbread, Compass Group, Burberry and Intercontinental Hotels are among the largest known UK consumer discretionary companies.
On the other hand, increased capacity to spend would presumably maintain demand and ironically potentially contribute to inflation.

A drop in the fuel duty by a small amount is unlikely to materially change driving habits but could be another tailwind for oil giants Shell and BP. Also, should there be no government pushback again Ofgem’s plan to raise the energy bill price cap by 54% in April, utilities such as National Grid, SSE and Centrica could be beneficiaries

Somehow homebuilders often tend to be benefices of grandiose government schemes to build more houses, including the likes of Persimmon, Barratt Developments and Taylor Wimpey.

Impact on FTSE

With energy and financials outperforming, the UK’s top 100 index could once again achieve record highs before any effects of the budget transpire. On March 7, the index bottomed out at 6753 and has since gained over 10%.

Above both the 200 and 50-day averages, 7700 is near-term resistance. If bulls recapture the level, 7913 becomes the next hurdle, and ultimately, new highs. But if the 50-day support at 7430 is lost, the index could slide to 7225. Below there, FTSE could revisit the 6753 low, and even break it.

Source: Spreadex trading platform

Key takeaways

Investors will focus on what policy measures Chancellor Sunak announces to assist households with increasing prices. Depending on how much cash ends up in the consumer's hands, discretionary stocks could see a short-term bump. This would spill over into the FTSE 100 index.