The FTSE 100 faced volatility this week, dropping 1.22% to around 8,150 points. UK Chancellor Rachel Reeves’ Autumn Budget announcement on Wednesday introduced new fiscal plans with £40 billion in tax increases affecting inheritance tax (IHT), capital gains, and national insurance.
While investors had expected stricter IHT measures, the announced 20% rate for AIM (Alternative Investment Market) holdings was more moderate than some had anticipated.
Capital gains tax rates rose, aligning with residential property rates, with basic rate payers now facing 18% and higher rate payers 24%.
Employers will see a 1.2% national insurance increase to 15%, although this remains below OECD (Organisation for Economic Co-operation and Development) and G7 averages.
This autumn’s budget has not sparked the market turmoil seen during Liz Truss’s 2022 “mini-budget,” which led to a sharp sell-off in bonds and a drop in the pound. While gilt yields have edged higher this week, the steadier market environment and stronger pound have prevented a repeat any significant market instability.
Annual spending will rise by £70 billion; this may compromise the Bank of England’s ability to cut rates, leading to higher for longer borrowing costs. Investors in UK gilts will require higher rates of return given the additional fiscal risks faced by the UK because of the additional spending.
Commodity markets
Brent crude rebounded to nearly $75 a barrel, bolstered by concerns over the potential Middle Eastern conflict and signs of economic recovery in China, which drives demand.
Gold is trading close to $2,670 per ounce, gold remains influenced global uncertainty and geopolitical risks.
Equity markets
US markets show resilience, with futures for the Dow, NASDAQ and S&P 500 all slightly up as of Friday. As the presidential election nears, candidates Donald Trump and Kamala Harris present contrasting economic approaches. Trump focuses on tariffs and ‘America first’ policies, while Harris emphasises small and medium-sized business support.
The US GDP grew by 2.8% in the third quarter (Q3), slightly lower than Q2’s 3%, with strong personal and government spending.
Investors are watching upcoming US jobs data for clues on the Federal Reserve’s next steps.
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