Rachel from Accounts…Robber Thieves… Rachel Thieves. At one point last week I actually forgot that it was actually ‘Reeves’ that was our Chancellor’s surname such was the vitriol spewing out from various quarters.
It’s still early days since Rachel Reeves delivered her Halloween budget and the money markets have yet to give a decisive reaction as they scrutinize every minutia detail and those not mentioned on her first budget speech.
Thankfully, Reeve’s maiden address didn’t deliver the Liz Truss effect when markets panicked and mortgage rates spiked.
However, it take a few days for the bond markets to give it the firm thumbs down and swap rates – which most lenders use to price their products - have already edged up.
However, it’s clear that there are a few things to consider when looking at your own personal finances.
The amount of spending Reeves unveiled took everyone by surprise.
The hike in employers’ national insurance was bigger than expected (1.2%) and the fear is it will affect the amount of investment businesses are prepared to make.
Will this extra burden on business lead to inflation as they seek to recover the extra national insurance costs by putting up prices?
Inflation remaining stubborn also doesn’t bode well for interest rates – however, the markets are still expecting a small 0.25% cut when the Bank of England’s Monetary Committee meets later this week.
However, in earlier statements Reeves said that this was supposed to have been a budget for growth. Unfortunately, the Office for Budget Responsibility (OBR) forecast doesn’t concur.
Despite all this, the markets still expect interest rates to trend downward, though perhaps at a slower pace.
The first 0.25% cut is still likely this week with an additional three or four cuts of the same size anticipated by the end of 2025.
One City pundit told me: “On the morning after Rachel Reeves announced £40 billion in tax hikes and increased public investment, markets reacted with caution.
“The FTSE 100 and 250 dropped to six-week lows, and the OBR noted that inflation could rise, reducing the likelihood of a Bank of England rate cut although a rate cut in November still has an 80% probability, it's down from 94% yesterday.
“The pound saw only a slight decline, trading at €1.2979 or $1.1951. Oil prices remain below $73 a barrel as tensions between Iran and Israel ease. Government borrowing costs, gilts, rose to a 4.43% interest rate, the highest since October 2023, as investors demand higher returns due to increased risks and in turn swaps have jumped.”
For the time being lenders have been slow to react, partly because they hedged their positions earlier last month and partly because they’re waiting to see how things settle.
In my view though it’s likely only a matter of time before they make a move.
Telly pundit and property professional Russell Quirk had some interesting thoughts on the budget.
He told me: “For property it was bittersweet. A hike in stamp duty on second home/investment property purchases to 5% is at best inconvenient. But not terminal.
“Retaining the 24% CGT level on resi investment property disposals; a reprieve given that at one point we thought Reeves might apply CGT to all property sales including prime residences. She didn’t go anywhere near that.
“Business Asset Disposal Relief stays at 10% until April, rising to 14%. This could have been much worse.
“In wider aspects, abolishing the income tax threshold freeze (in 2028) ends the fiscal drag trick. That’s good news for millions of employees.
“But the 1.2% NI increase on employers’ contributions is irritating, especially for larger businesses. Small businesses under a certain number of employees will be exempt though.”
And he added: “I suspect this increase will simply be reflected in lower pay awards for employees and so ‘workers’ will lose out - despite the Chancellor’s manifesto pledge.
“A 16% increase in the living wage is surely an overall societal positive? Many will argue that if your business relies upon paying many of your staff ‘the minimum’ that your enterprise might not be that viable in any case?”
He concluded: “All in all this Budget could have been worse and leaves the property industry pretty much unscathed.
And so onwards we go. Only time will tell if Rachel Reeves let out some ghost to haunt us all on Halloween.
But do remember, smart choices start with expert advice – speak to your mortgage adviser to get the best for your financial future.
UK Property and Finance Expert
