From potential capital gains tax increases and reducing tax-free allowances for wealthier earners and pensioners, there’s some nervousness ahead of the 2024 Autumn Budget. People are getting more worried about how these changes could impact their finances, and the economy.
The government themselves have said things will get worse before they get better, and this has knocked consumer and business confidence.
This showed up in net outflows from UK equity funds – although immediately after the election results – net outflows in the month of July were £207mn, the smallest figure in three years according to fund network Calastone. They then rose again in September – with net outflows hitting £666mn.
However, you can’t view the upcoming Budget and its potential repercussions on their own.
The economy is also likely to feel the continuing benefits as interest rates head lower. And the Bank of England has hinted that more aggressive cuts could be on the way.
This isn’t personal advice. All investments and any income from them can rise and fall in value, so you could get back less than you invest. If you’re not sure what’s right for you, ask for financial advice.
Which sectors could benefit most from the Autumn Budget?
There’s no doubt the Budget could be a significant pound pincher for some wealthier individuals and companies. However, the pledge to help working people while increasing spending on health, housing, and infrastructure development, could create more optimism for other sectors in a lower-interest rate environment.
Companies looking set to see more benefit include some housebuilders, construction companies, companies reliant on discretionary spending and those supplying services to the NHS.
Companies, like some grocers, which sell products that are deemed household essentials will also likely do well, whatever the economic weather. These companies have the added tailwind of falling inflation too. Of course there are no guarantees though.
Chancellor Rachel Reeves has said the government will prioritise and increase investment in major projects in this month’s Budget. With a tinkering of self-imposed borrowing rules now expected, it could give extra wind in the sails of major civil engineering companies.
The recent snapshot of the UK construction sector showed it grew at its fastest rate in more than two years in September amid a sharp uplift in major projects.
Housebuilders have already been among the beneficiaries of the government plans with Rachel Reeves emphasising her commitment to reducing planning red tape and speeding up homebuilding programmes.
The era of higher interest rates put housebuilders in a tough position, but headwinds are easing with rate cuts on the horizon. The promise to extend the mortgage guarantee scheme should also help with demand.
Consumer stalwarts of the high street could also show some resilience in the months ahead. That’s because working people look set to be ring-fenced from further tax rises, while being given a helping hand with lower borrowing costs.
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What about bond markets?
Bond markets will be on alert to just how much the government will borrow to invest.
There have been warnings that there’s limited demand for new UK debt – and there could be nervousness if there’s a big chunk of extra borrowing.
Rates are also a big part of the bond market picture.
Bond prices usually fall when interest rates are rising and rise when they’re falling.
However, there is some caution needed.
The journey for inflation to come under control is likely to be a bumpy one. There’s still potential for inflation to increase at times while staying on a downward trend. So, this could cause ups and downs in bond prices.
Bond yields have been volatile lately, but broadly remain higher than they’ve been for many years. With interest rate cuts expected, we think this could be a good entry point to buy bonds.
