A muted market response

David Jones
THE Treasury has made a decent start to its austerity measures. The Budget appears well-balanced despite the fact there were hints of give-aways as the government looked to shore up confidence. Marginal improvements in income tax and the changes to petrol duty may help, although we did see a wobble in shorter term growth forecasts. This certainly didn’t support the pound. But the fact that there is confidence the deficit and inflation will be reined in over the mid-term seems to help.

If there was one surprise today, it was perhaps the bonus tax facing the energy companies. While this still needs to be refined, it has the scope to raise as much as the banking levy. And with the expectation that crude will remain above $100 a barrel, suggestions from the chancellor that the tax will be withdrawn when oil falls below $75 a barrel seem irrelevant.

Needless to say, reaction amongst the UK’s blue chip stocks has been somewhat muted and even the big energy companies’ stock prices closed with little change. The reduction in corporation taxes as the government attempts to make it more attractive to keep companies headquartered in the UK is another step to aiding economic recovery. Shareholders haven’t responded with much fanfare. But earnings from the FTSE 100 are so diversified globally that what happens in the UK alone is unlikely to drive the kind of big market reaction some may have been looking for.

David Jones is IG Index chief market strategist