Three key takeaways from today’s budget and OBR forecast

With Phillip Hammond providing the latest budget, what are its key takeaways, along with the OBR forecast announcements?

IG Analyst

Publication date : 2017-11-22T16:19:12+0000

Source: Bloomberg

Today’s budget has proven largely unremarkable, with the headline giveaways from Phillip Hammond largely falling along the lines of what was widely expected. That being said, there has been a few key takeaways from today’s budget and Office for Budget Responsibility (OBR) forecasts:

Growth outlook increasingly bleak

It is always going to be difficult for the OBR to truly gauge how much or little the UK economy is going to be hit by the Brexit process. However, today’s substantial growth domestic product (GDP) write-downs from the OBR highlighted that the UK economy is set for hard times, with the current 1.5% growth only expected to be surpassed in 2022. This grim outlook for UK growth represents the main takeaway for markets, with the pound falling sharply in response. Interestingly, the fact that we saw GBP/USD regain those losses through the announcement of a weaker durable goods number highlights that such significant downward revisions are not out of the ordinary. With GBP/USD having traded within a range for the past two months, there is a good chance that this current rebound could be a short-term phenomenon, where trendline ($1.3300) and horizontal ($1.3321) resistance could push the pair lower once more in the near future.

GBP/USD chart

First-time buyers stamp duty changes likely to boost house prices

The decision to eliminate stamp duty for a first-time buyer on properties below £300,000 (£500,000 for London) aims to reduce the hurdles for buying your first home. This has been widely expected, and fulfills the Conservative aim to appeal towards younger voters that seem to favour Labour. Interestingly, we have seen the housebuilders lose ground in response to this announcement, with traders choosing to buy the rumour, sell the fact. This announcement will also do little to help first-time buyers, with the OBR expecting to see house prices inflate as demand grows. This will also have a similar effect to the old staggered stamp duty thresholds, where prices gravitate towards the threshold.

Improved debt picture

One positive from today’s budget came in the form of an improved debt picture, with the government having less interest repayments as a result. That being said, this is less to do with the fiscal prudence of Hammond and Co., but rather a reflection of the impending sale of government-held Royal Bank of Scotland (RBS) shares. The government has done little to bring down debt, and with the £3 billion added to the Brexit fund likely to grow over the years, debt is sure to rise.

Three key takeaways from today’s budget and OBR forecast

GBP/USD chart

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