UK not looking pretty - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 16, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    James Knightley, analyst at ING Bank explained that Chancellor Osborne’s 2016 Budget statement has acknowledged the weaker economic environment with growth forecasts being cut for the next five years.

    Key Quotes:

    "Consequently, the economy is now projected (by the Office for Budget Responsibility) to be 1.4% smaller in real terms by 2020 than expected just a few months ago. In order to meet his goal of balancing the books he has announced that government spending will be cut by £3.5bn over the life of this parliament with government spending as a proportion of GDP falling to 36.9% by 2020. How these cuts will be made has not been outlined other than described rather vaguely as “savings”. With department budget already having been cut aggressively it will be interesting to see where new efficiency savings can be made. Nonetheless, borrowing and debt forecass have had to be revised higher.

    There are some partial offsetting positives that will help to provide support to the economy. There will be a £500 increase in the tax free allowance (the amount of income earned before income tax is changed) and a rise in the threshold that the 40% tax rate kicks in. Capital gains tax is being reduced, while there are also efforts to stimulate savings for pensions and home purchase through a new Lifetime ISA product whereby the government will provide a £1 boost for every £4 someone under 40 years of age saves in it (up to a total of £1000 of government money).

    As for corporates we are seeing the tax burden shifted further away from smaller businesses onto the broader shoulders of multinationals. Reforms to business rates and stamp duty on commercial property along with lower corporation tax (down to 17%) are the main themes, but the Chancellor also announced restrictions on interest deductibility and efforts to up the tax take from large internet retailers. Britain’s oil and gas industry is being boosted by lower taxes while the introduction of a new sugar tax on drinks will raise around £500mn a year that will be used to fund school sports.

    Unsurprisingly, the Chancellor shied away from implementing more controversial plans, such as raising fuel duty and a radical reform of the pensions that were openly discussed just a few months ago. We assume Chancellor Osborne didn’t want to risk the ire of backbenchers in the middle of the EU referendum campaign that could have led to a potential rebellion against his budget. It therefore wasn’t surprising that he avoided giving a figure on the potential impact of Brexit on the growth, borrowing and debt numbers. Still, he did highlight the economic risks involved, which we think will lead to a significant slowdown in economic activity in the next two years. If the UK does vote to leave the EU in June we would not be surprised to see him swiftly presenting another raft of measure to try and shore-up confidence."
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