# The pound, gilts and stocks: likely winners and losers from UK budget Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-03-13 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: UK City Lobby Pushes for Spring Budget Sweeteners Amid Tax Meta Description: Find out how the UK spring budget may impact businesses and the economy, with potential tax breaks and market predictions to watch for. URL: https://financedigest.com/the-pound-gilts-and-stocks-likely-winners-and-losers-from-uk-budgethtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-03-13t085226z1lynxmpej2c0b2rtroptp4britain-economy-1736814335684-compressed.jpg) By Lucy Raitano, Samuel Indyk and Joice Alves LONDON (Reuters) – Britain’s City and business lobby are clamouring for sweeteners in Wednesday’s spring budget to replace generous investment relief that is expiring just as corporation tax is due to rise. Former Prime Minister Liz Truss sealed the short-lived status of her premiership back in September with a fiscally lavish and badly received budget that roiled UK markets. Jeremy Hunt, the [finance minister](https://www.financedigest.com/scottish-finance-minister-kate-forbes-to-run-for-countrys-leadership.html "Scottish finance minister Kate Forbes to run for country’s leadership") appointed after that debacle and retained by Truss’ replacement Rishi Sunak, will be careful to avoid a repeat of such chaos, likely keeping major policy changes on hold until the next election moves closer. Bloomberg reported on Saturday that Hunt will hand [businesses a three-year tax](https://www.financedigest.com/5-common-tax-mistakes-small-businesses-make-in-australia.html "5 Common Tax Mistakes Small Businesses Make in Australia") break worth 11 billion pounds ($13 billion) by replacing the UK’s investment allowance with a temporary measure. Hunt, who spent the weekend facilitating the [sale of Silicon Valley Bank’s](https://www.financedigest.com/exclusive-u-s-regulator-seeks-sale-of-silicon-valley-bank-signature-bank-portfolios-sources.html "Exclusive-U.S. regulator seeks sale of Silicon Valley Bank, Signature Bank portfolios-sources") UK arm to HSBC, has pledged support for the UK’s tech sector. Meanwhile, extremely wide forecasts for new public [borrowing requirements make the outlook for government](https://www.financedigest.com/uk-lenders-trial-government-backed-loans-for-risky-borrowers.html "UK lenders trial government-backed loans for risky borrowers") bonds uncertain. Here are the main [budget predictions](https://www.financedigest.com/budget-predictions.html "Budget predictions") for UK stocks, gilts and the pound. TAME AFFAIR By design its going to be quite a tame affair after all the [volatility last year,”](https://www.financedigest.com/crop-merchant-louis-dreyfus-gets-profit-boost-in-volatile-year.html "Crop merchant Louis Dreyfus gets profit boost in volatile year") Jason Simpson, senior fixed income strategist at SPDR, said. Like many in the City, he does not expect any meaningful [tax and spending plans](https://www.financedigest.com/uk-drops-plan-to-tax-sovereign-wealth-funds.html "UK drops plan to tax sovereign wealth funds") until the next election moves closer. With no big giveaways expected, traders’ main focus is on new public borrowing forecasts, where analysts’ expectations are so wide the final number may move government bonds significantly. The Office for [Budget Responsibility may well upgrade its 2023 GDP forecast after business](https://www.financedigest.com/how-to-budget-for-legal-fees-in-your-business.html "How to Budget for Legal Fees in Your Business") data showed the UK economy is faring better than feared and GDP data on Friday showed growth was a little better than expected in January. The OBR forecast in November that Britain’s economy would shrink by 2% in 2023. NatWest is now forecasting 3.7% growth this year. However NatWest analysts flagged that the OBR will likely revise down growth forecasts for the next five years, making the [outlook for interest rates](https://www.financedigest.com/stocks-euro-gain-amid-divergent-fed-ecb-rate-hike-outlooks.html "Stocks, euro gain amid divergent Fed, ECB rate hike outlooks") finely balanced. That may affect sterling, as well as debt-dependent equity sectors like homebuilders and [property landlords](https://www.financedigest.com/4-tips-for-landlords-to-increase-rental-property-profits.html "4 Tips for Landlords to Increase Rental Property Profits"). A slightly firmer growth outlook from the OBR for this [year](https://www.financedigest.com/2017-cfo-outlook-top-priorities-as-new-year-gets-underway.html "2017 CFO Outlook: Top Priorities as New Year Gets Underway") may brighten the outlook for sterling slightly, but it should not cause much reaction,” said Jane Foley, head of FX strategy, at Rabobank in London. Hunt will likely keep the budget “reasonably dull” after Truss’s “mini-budget” sent sterling to its lowest on record, she added. Sterling and bonds after Mini Budget https://fingfx.thomsonreuters.com/gfx/mkt/lbpgglegdpq/Sterling%20and%20bonds%20after%20Mini%20Budget.png BORROWING UNCERTAINTY Borrowing expectations for the 2023/24 financial [year are likely to be lower](https://www.financedigest.com/spains-inflation-to-be-lower-this-year-than-in-2022-minister.html "Spain’s inflation to be lower this year than in 2022 -minister") than the indicative estimate from Hunt’s Autumn Statement, with an unusually wide range of estimates for how much they will fall. The lack of certainty could “engender sharp reactions” in the gilt market, UBS rates strategist Rohan Khanna said. The UK’s Debt Management Office has [projected a 305.1 billion pound](https://www.financedigest.com/britain-announces-205-million-pound-auction-for-renewable-power-projects.html "Britain announces 205 million pound auction for renewable power projects") ($362.5 billion) gross financing requirement. Forecasts are for this to drop to a range of between 220 billion and 275 billion pounds, Royal London [Asset Management](https://www.financedigest.com/french-watchdog-fines-h2o-asset-management-executives-over-tennor-investments.html "French watchdog fines H2O Asset Management, executives over Tennor investments") fund manager Ben Nicholl said. According to UBS’ Khanna, a 225-billion pound projection would either generate a rally in gilts, or cause traders to question the feasibility of such a low figure. A number above 275 billion would push yields up, he said. Meanwhile, extended [support for consumers’ energy bills](https://www.financedigest.com/energy-bill-support-pushes-uk-budget-deficit-to-february-record.html "Energy bill support pushes UK budget deficit to February record") could also weigh on gilts and lead to tighter monetary policy at the margin. If households are sheltered for longer than expected in terms of energy prices, then they have potentially more disposable [income and that could in turn create](https://www.financedigest.com/5-mistakes-to-avoid-when-creating-passive-income.html "5 Mistakes to Avoid When Creating Passive Income") more persistent inflationary pressures,” Matthew Cady, investment strategist at Brooks Macdonald, said. DMO Debt Issuance https://fingfx.thomsonreuters.com/gfx/mkt/jnpwyazqmpw/40xMa-british-debt-issuance-soars-since-2008.png UNDER PRESSURE [Stock market investors](https://www.financedigest.com/influx-of-one-time-investors-swapping-stocks-for-bricks-and-mortar-reports-agency.html "Influx of ‘one-time’ investors swapping stocks for bricks and mortar reports agency") will be looking out for new business-friendly tax offsets as the government tackles a growing trend of companies favouring the U.S. as a [listing destination over London](https://www.financedigest.com/oneweb-eutelsat-set-for-secondary-london-listing-the-times.html "OneWeb-Eutelsat set for secondary London listing – The Times"). [Chip designer](https://www.financedigest.com/nvidia-shows-new-research-on-using-ai-to-improve-chip-designs.html "Nvidia shows new research on using AI to improve chip designs") Arm is pursuing a U.S.-only listing while UK construction group CRH recommended moving its primary listing across the Atlantic. Energy giant Shell was said to have considered the same. “There’s going to be very little in terms of tax bungs (breaks) or spending giveaways,” predicted Patrick Spencer, vice-chair of equities at RW Baird. But [companies have had very attractive tax](https://www.financedigest.com/exxon-sues-eu-in-move-to-block-new-windfall-tax-on-oil-companies.html "Exxon sues EU in move to block new windfall tax on oil companies") offsets,” he added. “Hunt’s going to have to do something to replace that.” Corporation tax is due to rise to 25% and a generous pandemic-era tax saving on [business](https://www.financedigest.com/the-digital-transformation-of-tax-filing-how-e-filing-revolutionizes-business-taxes.html "The Digital Transformation of Tax Filing: How E-Filing Revolutionizes Business Taxes") investment known as the “super deduction”, which cuts companies’ taxes by up to 25p for every pound invested, will expire. Confederation of British [Industry economic policy director Louise Hellem is urging the government to avoid the “double whammy” of corporation](https://www.financedigest.com/corporate-social-responsibility-within-the-festival-industry.html "Corporate Social Responsibility Within The Festival Industry") tax rising and the expiry of the tax super-deduction. BT Group is among the companies to have said the super-deduction was a significant boost to its bottom line. [Investors in UK stocks](https://www.financedigest.com/uk-stocks-slip-as-rate-hike-worries-grip-investors.html "UK stocks slip as rate hike worries grip investors") are already grappling with a wide valuation gap with U.S. equities. UK valuation gap https://www.reuters.com/graphics/GLOBAL-MARKETS/akveqowajvr/chart.png SECTOR SPECIFICS If changes to OBR growth forecasts shift views on UK interest rates, [expect moves in sectors closely correlated to borrowing costs](https://www.financedigest.com/five-cost-of-living-trends-expected-in-2023.html "Five cost of living trends expected in 2023"), which Investec head of UK equities Roger Lee identifies as builders, banks, property landlords and retailers. [Bank stocks tend to get a boost from rising](https://www.financedigest.com/stocks-rise-after-bank-sale-fuels-investor-risk-appetite.html "Stocks rise after bank sale fuels investor risk appetite") rate expectations, while property shares fall. [Rate hikes’](https://www.financedigest.com/uk-economys-unexpected-bounce-spurs-more-boe-rate-hike-talk.html "UK economy’s unexpected bounce spurs more BoE rate hike talk") winners and losers https://www.reuters.com/graphics/BRITAIN-MARKETS/BUDGET/zjpqjyleyvx/Screenshot%202023-03-08%20at%2015.52.09.png Defence, a focus for equity investors in the last year, with the FTSE 350 index of aerospace and defence names up 32% in the last 12 months, is not expected to get much out of this budget. “That said, with more flexibility than available in November, throwing the defence department a bone here could prove an easy win for the chancellor,” Michael Field, European equity strategist at Morningstar, said. [Falling house prices](https://www.financedigest.com/buy-off-plan-to-beat-stalling-house-prices-and-falling-rental-yields-says-jean-liggett.html "“Buy off-plan to beat stalling house prices and falling rental yields” says Jean Liggett ") and increased affordability may also spell less support for homebuilders, Fielding said. Cries for heavier windfall [taxes on energy](https://www.financedigest.com/britains-tax-take-risks-blowing-green-energy-off-target.html "Britain’s tax take risks blowing green energy off target") companies have subsided as wholesale power prices have dropped. Even if there is a bigger windfall tax, oil majors BP and Shell have relatively limited [North Sea](https://www.financedigest.com/offshore-crews-to-strike-on-bps-north-sea-installations-says-unite.html "Offshore crews to strike on BP’s North Sea installations, says Unite") exposure that would be affected. ($1 = 0.8258 pounds) (Reporting by Lucy Raitano, Samuel Indyk, Joice Alves and Naomi Rovnick; Writing by Naomi Rovnick; Editing by Amanda Cooper, Sonali Paul and Nick Macfie) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---