Proactive Investors - The macro week ahead will be dominated by the Autumn Statement in the UK as chancellor Jeremy Hunt aims to balance the books whilst producing the odd rabbit out of a hat.
Minutes of the latest Federal Reserve meeting will also attract headlines in a shortened week in the US ahead of Thanksgiving.
Does the chancellor have any wiggle room?
Starting with the UK, and ING thinks the chancellor is likely to be gifted with a rare bit of good news as he gears up for his address on Wednesday.
Not only has borrowing come in £20 billion lower than forecast so far this fiscal year, but new projections from the Office for Budget Responsibility (OBR) are likely to show that he has a little more wiggle room to play with, whilst still meeting his main fiscal goal of lowering debt as a share of GDP within five years.
This ‘wiggle room’ has added importance ahead of a likely general election in 2024 with the Conservatives well behind in the polls.
ING reckons the chancellor will be landed with roughly £15 billion in “headroom” against his fiscal targets, which is an increase from the £6.5 billion available back in March.
This could rise by a further £6-7 billion if the Bank of England cuts Bank Rate more aggressively than markets expect over the next couple of years.
What, if anything, will Hunt change
As always, reports are widespread as to what Hunt may do with the spare cash.
Deutsche Bank’s Sanjay Raja doesn’t expect many giveaways with the chancellor fine tuning policy ahead of what could be a final push next spring.
“Pressure to cut taxes will only grow ahead of a next general election (likely to take place in autumn 2024),” he explained, suggesting a cautious approach may be warranted “with last year's mini-Budget fallout still very salient in markets”.
Chris Sanger, EY’s head of tax policy, agreed: "Following a somewhat unorthodox series of substantive fiscal announcements over the last 12 months, it’s likely we’ll see the chancellor return to the more traditional ‘economic statement'."
“Greater than predicted tax receipts are likely to provide the chancellor with a modest increase in fiscal headroom”, but “he may well choose to stress the merit of sticking to his prudent approach”.
“We can expect an Autumn Statement that sets the table, ahead of what may be a small dinner of cuts and incentives in Spring.”
Inheritance tax, ISAs, Triple Lock in the spotlight
Paul Barham, partner, Mazars commented: “It’s hard to know exactly what the chancellor will swing for on Wednesday. But rumours of changes to inheritance taxation are rife. Last year it raised £7.1 billion and while not the biggest moneymaker, the treasury is unlikely to want to see a hole of that size in their budgets.”
Aside from the inheritance tax, there are reports that the chancellor has been considering a variety of reforms to the ISA regime.
One idea is to allow people to pay money into more than one ISA of each type in a tax year which would make it easier for investors to try out different stocks and shares ISA providers, while cash savers could open multiple new ISAs as new deals become available.
For business, there is mounting expectations of full expensing of capital expenditure (beyond 2025/26) where firms can fully offset any capex against their tax bill.
An extension of the 'Help to Buy' scheme (due to end on 31 December), alongside a potential rebate on stamp duty is also reportedly under consideration, while there could also be a further cost-of-living payment delivered this year.
Another area to watch out for is the pension triple lock and whether the chancellor decides to link increases in benefits to October’s inflation rate rather than September’s.
Fed minutes dominate shortened week
In the US, the minutes of the 1 November FOMC meeting will be released, but ING thinks this is likely to be less market-moving than usual, given the post-meeting softness in data.
“We have already heard from several Fed officials who have welcomed the direction of the numbers but commented that they want to see more of the same to be sure that inflation is on the path to 2%,” the bank pointed out.
Slowing inflation and softening labour data have reinforced the view that the Federal Reserve has finished hiking interest rates, with momentum now building behind the view that the central bank will be in a position to aggressively cut rates next year.
Other data to watch includes housing statistics, durable goods orders and jobless claims numbers.
Elsewhere, a slew of flash PMI readings will provide a snapshot of economic activity across the globe.
Read more on Proactive Investors UK
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