Jon Smith reviews the announcements from the Chancellor this morning and shares how he thinks it will help the stock market.
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This morning, Chancellor Kwasi Kwarteng outlined a package of fiscal measures that should help to boost the UK economy. It has been dubbed a mini-budget, as usually we don’t have such announcements made outside of the customary Budget. With a range of measures announced, there are some clear implications on the stock market. Here’s my take on what it could mean for my investments.
One of the policies that has come into effect today is the cut in stamp duty. At the moment, it kicks in above £125k, but this is going to be doubled to £250k. For first-time buyers, the threshold is heading to £425k. This means that prospective buyers will find it cheaper to buy property, as the amount to pay in stamp duty is lower reduced.
I see this as a positive sign for property stocks. This ranges from homebuilders to listed estate agents. Some of these stocks have been under pressure recently, as the gloomy outlook for the economy and higher mortgage rates have become apparent. Yet this measure today should help. It should feed through into more commitment to buy houses as it becomes more affordable.
It’s something that’s instant, so buyers can take advantage of it today. I should note that interest rates are still likely to rise further from current levels. This remains the main risk I see for property stocks over the next year, as high mortgage rates could hinder activity.
From April next year, the basic rate of income tax will decrease from 20p to 19p. The 45p higher rate of tax is going to be reduced. Fundamentally, this means that we all should pay less in tax. We’ll have more in our pockets each month to spend on whatever we want.
At a broad level, this should be taken as a good sign for investors, as the stock market should benefit. In terms of specific sectors, I think this will help the travel and tourism industry. If I know that I’m going to get an extra £100 (or whatever the figure is) each month, I think a lot of people will put this towards a holiday.
Also, I think it will benefit retail trading platforms and wealth managers. Some people might be prudent and use the extra money to invest in the market.
Given that household bills are rising, it might be the case that the extra cash simply goes towards paying down debt and paying bills. Consequently, I might not see the full benefit in some areas of the economy.
I think that one of the reasons for underperformance in the stock market recently has been the political uncertainty. Finally, we have a situation where a new Prime Minister is in place. Now we have the mini-budget setting out tax breaks. I’m not saying that we’re going to avert a recession, but the fact that we have more clarity and action is a good thing.
For an investor like me, it gives renewed confidence in investing for the long term. My strategy this year of buying on dips is one that I’m going to keep using from here.
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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