Asset Intelligence Comment: Spring Statement 2022
By Kel Nwanuforo
Every Chancellor needs a proverbial ‘rabbit out of the hat’ for their tentpole statements to Parliament, and Rishi Sunak certainly had one lined up this time.
Yes, it’s this year’s Spring Statement, and the big headline is undoubtedly the huge increase in the National Insurance threshold from the current £9,570 to £12,570 – the same level as Income Tax – from July.
So even though next month’s 1.25 percentage point increase in the rate at which National Insurance is levied will remain, today’s threshold rise means those earning roughly £35,000 or less will be fully compensated or more! It’s worth keeping in mind that that’s well above the national average salary, so the much-vaunted ‘NI hike’ has effectively been cancelled for many.
Elsewhere, other than the half-hearted promise of a penny-in-the-pound income tax cut… in two years’ time, the other headline-grabber is clearly intended to be the 5p-a-litre cut in Fuel Duty, which takes effect at 6pm tonight.
This sounds good enough but as any motorist who hasn’t yet succumbed to a shiny new electric vehicle will know, the fact is fuel prices have risen by much more than this in the last few weeks alone. The reduction will save around £3.30 on a typical tank – so this is one side-effect of the tragic invasion of Ukraine that the red-tops are unlikely to stop crowing about just yet.
And how about the economic outlook? Unfortunately, here the news was predominantly bad. The independent Office for Budget Responsibility (OBR) is now forecasting that the UK economy will grow by 3.8% in 2022 as a whole, an extremely sharp reduction from its prior projection of 6.0%.
Meanwhile, on the topic of the moment – inflation – the OBR is expecting an astonishing average rate of 7.4% in 2022, with an expected peak of 8.7% in the final quarter of the year. The latter figure in particular is one the likes of which your scribe has not yet seen within his lifetime of nearly three decades and twain.
Elsewhere, rising bond yields mean that the government is now projected to spend £83bn on debt interest within the next financial year – an exceptional four-fold increase on the current year’s bill. Alongside reasons of political positioning and a natural Conservative inclination towards fiscal restraint, this statistic goes a long way to explaining Rishi Sunak’s overall caution with the public finances.
Finally, what does all this mean for the investment outlook for the UK? Not much, in truth. The market has been bracing for higher inflation and slower growth for some weeks now, so to an extent the OBR finds itself catching up with expectations rather than telling investors much we didn’t already know.
We continue to believe that the attractive valuations on offer, coupled with the UK market’s natural tilt towards value and cyclical sectors, make it an appealing option given the growing wariness of expensive stocks and the inflationary backdrop currently spreading across the world.
If the rise in the National Insurance threshold means that people have a bit more money in their pockets than we were previously told would be the case, then so much the better.
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