30 October 2018

Scott Reid

30 October 2018

Good morning,

The Times calls it ‘Hammond’s giveaway gamble’, the Evening Standard ‘Fiscal Phil’s big giveaway budget’, while the FT writes ‘Hammond delivers largest giveaway Budget since 2010’.
 
All of which gives a good indication of the Chancellor’s freer use of government funds than we have come to expect when he delivered his Budget to parliament yesterday – an approach, it is worth pointing out, also extended to his copious, if questionable, use of humour.
 
Sure enough, there were giveaways aplenty. These included confirmation of an additional £20 billion for the NHS, £4.5 billion to ease the introduction of universal credit, an annual 1.2% increase in public spending over five years from 2020, and an announcement that a rise in the tax-free personal allowance to £12,500 and the higher rate threshold to £50,000 will be brought forward to April next year.
 
Yet much of this we knew already, thanks to the prime minister’s perhaps over-zealous spending commitments announced at the Conservative Party conference earlier this month. On the risk of spending being constrained by the prospect for economic chaos as a result of a ‘no-deal’ Brexit, the chancellor’s warnings were upfront: an additional £500 million for contingency planning, and the likelihood of a full budget next Spring should Brexit talks go awry.
 
This was also a budget of ‘take-aways’, wherein lies some smart political manoeuvring by the chancellor. He announced that the government would no longer use Private Finance Initiatives (PFIs) for public contracts, and that a turnover levy in the form of a UK Digital Services Tax would be introduced on tech giants. I’d hazard a guess that a freeze on duties for spirits, beer and cider also went down well.
 
So perhaps no rabbits from hats, but enough to give a good indication of the government’s direction of travel. More spending to the tune of some £100 billion, certainly; but also a cautious approach given questionable underlying fundamentals of the economy, and the prospect that a chaotic Brexit might bring the house down.

News

Angela Merkel has announced her intention to stand down as German chancellor and leader of her CDU party in 2021. Following an electoral upset in Hesse’s state elections on Sunday, Merkel told party chiefs yesterday that she would not be the centre-right CDU’s candidate for chancellor in time for the next national election in 2021, and that she would also stand down as a member of the Bundestag. Merkel has led the CDU since 2000, becoming the first female German chancellor in 2005.
 
A report by the WWF has suggested that global wildlife populations have fallen as much by 60% since 1970 due to human impact on the natural environment. According to the Living Planet Report 2018, nine out of 10 of the world’s seabirds are thought to have plastic in their stomachs, while by 2050 only one tenth of the planet’s land is predicted to be free from human impact. The report suggests that the crisis is “unprecedented in its speed”, and that we are the “last generation” to reverse damage.
 
The number of Britons applying for an Irish passport has almost doubled since the UK voted to leave the EU in June 2016. According to figures revealed in the Irish Seanad, British applicant numbers rose from 46,229 in 2015 to 80, 752 last year. People with Irish parent or grandparents are entitled to apply for an Irish passport through a claim to citizenship, affecting at least 10% of the UK’s population on current estimates, excluding Northern Ireland. (£)

Business & Economy 

The Restaurant Group is in advanced talks to acquire the Wagamama restaurant chain for up to £600 millionThe Times reports this morning. According to the paper, The Restaurant Group, which owns chains including Frankie & Benny’s and Chiquito, is the preferred bidder after a sale process launched in June by Goldman Sachs on behalf of Duke Street and Hutton Collins, Wagamama’s private equity buyers. (£)
 
Sky News reports that CYBG is facing a legal complaint from SME customerswho allege it mis-sold loans whose costs pushed some into insolvency. The case relates to thousands of so-called Tailored Business Loans (TBLs) worth “hundreds of millions”, allegedly mis-sold by Clydesdale Bank between 2001 and 2012. RGL Management, a specialist claims management firm, is thought be co-ordinating a group of claims with All Square Finance in order to take the case forward.
 
A move by HSBC to set aside up to $71 million in “precautionary” provisions is thought to be the first by a large corporate to mitigate potential damage caused by a trade between the United States and China. Reporting third quarter results yesterday, the bank announced that the sum referred to “expected credit losses to reflect the possible impacts of higher trade tariffs and trade restrictions.” The bank saw a 16% increase in underlying profits to $6.2 billion in the three months to September, thanks to growth in its retail banking and wealth management divisions. (£)

Markets

The Budget, including the promise of tax cuts during 2019, was met with a warm reception on the London market yesterday. By close of play, the FTSE 100 had gained 1.25% or 86.76 points to finish at 7,026.32, while the 250 also rose by 1.17%.
 
Amid the flurry of new announcements, investors were also cheered by positive data from the Office for Budget Responsibility which showed that the amount of unsecured lending in the UK fell sharply in September, whilst mortgage lending grew. Although GDP growth has slowed overall in recent years, the OBR struck a slightly more optimistic tone by revising forecasts up in 2019 to 1.6% and to 1.4% in 2020.
 
In corporate news, Melrose Industries (up 4.97%) was among the day’s biggest gainers following a Bloomberg report that a Chinese regulator of its GKN division is considering cutting tax for most cars by up to half in order to boost flagging sales in the automotive market. HSBC (up 4.76%) also reported big gains as it posted stronger profit growth than expected for the third quarter, enjoying sustained growth across all three of its divisions, where cost cutting measures have begun to bear fruit.
 
On the downside was Just Eat (down 1.23%) following a downgrade by Peel Hunt from ‘sell’ to ‘buy, pointing to recent reports of a tie-up between Uber and Deliveroo and restricted competition in the sector.
 
On the currency markets, the pound was 0.24% weaker against the dollar at $1.28, and was also down by 0.22% on the euro at €1.12.

Finals
Proactics Holdings
 
Q3 Results
BP
Banco Bilbao Vizcaya Argentaria SA
Hunting
Reckitt Benckiser Group
 
Trading Announcements
Hunting
Shoe Zonr
 
AGMs
Accrol Group Holdings
Angle
Hargreaves Services
Ideagen
JPMorgan Mid Cap Inv Trust
Newmark Security PLC
Real Good Food
Scancell Holdings

EGMs
Syncona Limited NPV
 
GMs
Electra Private Equity
Randall & Quilter Investment Holdings (DI)
 
UK Economic Announcements
(06.00) Nationwide House Price Index
 
Intl. Economic Announcements
(08:00) Unemployment Rate (GER)
(10:00) Business Climate Indicator (EU)
(10:00) Consumer Confidence (EU)
(10:00) Economic Sentiment Indicator (EU)
(10:00) GDP (Preliminary) (EU)
(10:00) Industrial Confidence (EU)
(10:00) Services Confidence (EU)

Columns of Note

David Laws writes in the Times on the three reasons that yesterday’s Budget might not mark the ‘end of austerity’. He suggests that slowing deficit reduction alone can’t mitigate the impacts of austerity, instead arguing that increases to real wages, and more spending on welfare and public services are also necessary. Two other reasons to be cautious include Brexit and the fact that an average of 1.5% GDP growth announced yesterday is far below previous governments’ economic forecasts for the same period. (£)
 
In the Guardian, Alan Posener suggests that the departure of Angela Merkel as chancellor could mark Germany’s turn to the populist right. Unpicking the logic of leadership contests, Posener suggests that the ‘anointed heir’ (here, in the person of Annegret Kramp-Karrenbauer) is not certain to win as the party and public mood opts for a change candidate. Given the political zeitgeist across the continent, Posener speculates on whether a younger CDU rival might put a potential governing agreement with the far-right on the table in order to win votes.

Did you know?

In 2010, Nicaragua accidentally invaded Costa Rica. Google Maps had the border placed incorrectly, and so Nicaraguan troops believed that they were within their own borders when they were not.

Parliamentary highlights

TODAY
  
House of Commons
Oral questions
Foreign and Commonwealth Office (including Topical Questions)
 
Ten Minute Rule Motion
Tobacco - Sir Kevin Barron
 
Debate
Continuation of the Budget Debate
 
Adjournment
Effect of reductions in local authority budgets - Dan Jarvis

House of Lords
Oral questions
Support for the children of prisoners - The Lord Bishop of Gloucester
 
New trains service on the East Coast Main line between Newcastle and Edinburgh - Lord Beith
 
Importance of identification of spectrum conditions, such as dyslexia, ADHD and dyspraxia, on educational and other life outcomes - Lord Addington
 
Introduction of legislation to reduce the maximum bet for fixed-odds betting machines to £2 - Lord Griffiths of Burry Port
 
Legislation
Mental Health Units (Use of Force) Bill - Third reading - Baroness Massey of Darwen
 
Northern Ireland (Executive Formation and Exercise of Functions) Bill - Second reading and remaining stages - Lord Duncan of Springbank
 
Scottish Parliament
Topical Questions
 
Scottish Government Debate
A Digital Society For All: Working Together to Maximise the Benefits of Digital Inclusion
 
Members’ Business
Ban on the Export of Live Animals for Slaughter and Fattening – Colin Smyth
 
TOMORROW

House of Commons
Oral questions
Northern Ireland
 
Prime Minister's Question Time
 
Ten Minute Rule Motion
Banking and Post Office Services (Rural Areas and Small Communities) - Luke Graham
 
Debate
Continuation of the Budget Debate
 
Adjournment
Air pollution in relation to the A10 and Broxbourne - Mr Charles Walker

House of Lords
Oral questions
Supporting the UK as a global green financial centre - Lord Teverson
 
Safety implications for consumers of the retail sale of weedkillers such as Roundup - Baroness Jones of Moulsecoomb
 
Government progress in putting together the governance of their Industrial Strategy - Lord Fox
 
Legislation
Counter-Terrorism and Border Security Bill - committee stage (day 2) - Baroness Williams of Trafford
 
Debate
Provision of new technologies, such as flash glucose monitoring systems, for Type 1 diabetes patients throughout England and Wales - Lord Morris of Aberavon
 
Scottish Parliament
Portfolio Questions
Communities and Local Government
Social Security and Older People
 
Scottish Conservative and Unionist Party Debate
Transport
Early Years
 
Members’ Business
Restoring the Caledonian Pinewood Forest – Joan McAlpine