First reactions

Philip Shaw, Investec's chief economist:

"The first take is that the medium-term borrowing forecasts look similar to the March Spring Statement, despite a marked improvement in the public finances so far this year.

"This shows the political imperative for the Chancellor to be more generous in key areas of public expenditure, rather than eliminating the deficit over the next few years, as Mr Hammond has previously promised."


Investec's Richard Holm:

"In my view this has been a positive Budget announcement. Against the backdrop of rising economic growth forecasts and falling public sector borrowing, the Chancellor has found scope to hand out a number of tax benefits.

"This should go some way towards lifting the general economic mood, although probably still pales in insignificance for most small companies compared to the potential consequence to their business in a no-deal Brexit scenario.

As much as the Chancellor has reported a healthy economic status and delivered a confident, pro-business Budget, this is likely to have little serious benefit on the economy at large until the uncertainty of Brexit is behind us.”


Arjun Chopra, head of Private Capital UK at Investec

“The Chancellor stated that ‘encouraging entrepreneur members must be at the heart of our dynamic economy’, but I don’t believe this Budget has honoured this.

“While I'm pleased that the Chancellor has decided to keep Entrepreneurs’ Relief (ER) – it does go some way in encouraging entrepreneurs to start businesses, aiming to provide an environment in which they are able to take risks, grow and ultimately create jobs and value for the UK economy – in my opinion the ER scheme as it stands is expensive, too narrow in scope and benefits only a small proportion of UK entrepreneurs. 

“We would like to see the government set out new legislation that supports entrepreneurs in the way that it was intended to do – benefitting the numerous entrepreneurs in the UK who help to maintain and advance the UK’s reputation as a highly innovative country.”



Income tax

Tax-free allowance for personal income tax will increase to 12,500 pounds in April 2020.

  • Higher rate threshold for income tax will increase to £50,000 in April 2020.
  • Planned personal tax rises willbe brought forward one year early to April 2019.




Fuel duty to be frozen.



Entrepreneurs' relief

The Chancellor has announced that there will be no change to the level of entrepreneurs’ relief available, but that the ownership period will be doubled to two years in order to better target relief, worth up to £1m to business owners.



Business rates

For the next two years all retailers in England with a rateable value of £51,000 or less will have their business rates bill cut by a third. VAT thresholds for small businesses to stay unchanged for two years.


Wesley Harfield, Investec Asset Finance:

"The apprenticeship scheme must be a good thing for construction and UK manufacturing generally, the high street money is obviously welcome for the retail sector which has had a difficult time of late with the increase propensity shopping on line."

Investec's Richard Holm:

"We see the Chancellor’s announcement of a freeze on VAT increases for small businesses and the generous jump in the AIA from £200k to £1m per annum as very positive for UK enterprise. This clearly shows that small and medium businesses are seen as key to the UK’s future growth, in particular for companies engaged in the manufacture of goods for export."



Digital services tax

Digital services tax will only be paid by profitable companies with global revenues of at least £500m stg.


Chancellor's Philip Hammond:

"We will now introduce a UK Digital Services Tax ... It will be carefully designed to ensure it is established tech giants – rather than our tech start-ups - that shoulder the burden of this new tax."



"Britain is open for business"

Jonathan Pryor, Investec's head of FX:

"A timely message from the Chancellor in the face of the uncertainty of Brexit, seemingly supported by the spending and investment plans announced. We may need to see delivery and a positive shift in sentiment to directly feed through to improved business confidence amongst our corporate clients.



Business Investment allowance

Chancellor is increasing businesses' annual investment allowance to £1m stg for two years from £200,000.

Investec's Richard Holm:

"The forecast reduction in government borrowing following revised growth forecasts should prove positive for business. This will provide more fiscal wriggle-room ahead for the government, reducing the likelihood of tax and rate increases in the coming years. The additional £20.5bn of announced funding for the NHS should also prove a boon for companies in the healthcare/pharma sector – particularly those contracting into the NHS."



Departmental spending

Hammond says departmental resource spending will grow by an average 1.2% a year in real terms, indicating the the path of public spending is turning.



Brexit dividend

Chancellor expects that the deal dividend from Brexit will allow further funding for the 2019 spending review.



Growth forecasts

Office for Budget Responsibility forecasts show:
  • 2019 GDP growth of 1.6% (up from 1.3% in March 2018)
  • 2020 GDP growth of 1.4% (up from 1.3% in March 2018)
  • 2023 GDP growth of 1.6%


Investec's Richard Holm:

"The Chancellor has a solid economic platform upon which to deliver this Budget. The British economy has recovered well since the global financial crisis and the national finances seem to be under control. Having said that – the Chancellor must look ahead to huge uncertainty surrounding the outcome of any potential Brexit deal and its likely impact on consumer and business confidence. Hence the question remains over the longer term sustainability of UK economic performance and its strength of public finances."

Philip Hammond, U.K. chancellor of the exchequer, holds the dispatch box containing the budget, outside 11 Downing Street before presenting an annual budget statement in Parliament in London, U.K., on Monday, Oct. 29, 2018. When 'Spreadsheet Phil' stands up in Parliament at 3:30 p.m., it is in the knowledge that much of what he promises hinges on a successful outcome of talks in Brussels with the U.K. leaving on March 2019, deal or no deal. Photographer: Chris Ratcliffe/Bloomberg via Getty Images
Philip Hammond, Chancellor of the exchequer leaves 11 Downing Street ahead of his Budget 2018 statement to Parliament




House price figures

Figures from the Bank of England showed that 65.3k mortgages were approved for house purchase in September. This was down from the 66.1k in August, but a beat on consensus expectations for a more marked softening to 64.7k (Investec 65.6k).


Additionally net mortgage lending came in a full £1.0bn higher than consensus expectations, rising to £3.9bn in September from £3.1bn previously. More concerning, however, was net consumer credit lending which fell to +£0.8bn in September (consensus +£1.2bn) from the +£1.2bn recorded in August.


This contributed to a further slowing in annual consumer credit growth to 7.7%, the weakest pace recorded since June 2015. Still, the Bank of England reported that this was due to a sharp fall in automotive finance amid September’s weak car sales.


Note that car sales have been impacted by the shift to new emissions tests in September, prompting dealerships to offer steep discounts in August. As such, we may see an improvement in net consumer credit lending once the car market normalises.




Budget day

Chancellor Philip Hammond is set to deliver his third Budget today at around 3.30pm, the UK's final one before Brexit. Amid a difficult political backdrop, this is likely to be a net easing Budget with the Chancellor facing a sizeable list of spending demands, not least PM May’s pledge to increase funding for the NHS, but with limited political scope for tax rises.


He will however face a more favourable recent borrowing profile. From the weekend’s press, the list of possible announcements today include, on top of the NHS cash, an extra £30bn for roads investment, £800m more for social care, more money to smooth the introduction of universal credit, a levy on offshore gambling, the announcement of a timetable for greater taxation of digital/tech companies, a plastics tax and more measures to “fix the housing market”.


There is also talk of a possible reduction in the annual tax free limit on pensions contributions. Note at the weekend the Chancellor also made clear that there would be a new Budget in the case of a no-deal Brexit.


Read our full Budget preview from the Investec economics team.

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