It was Budget day yesterday and, when it comes to UK businesses, Chancellor Jeremy Hunt is focused on growth, tackling economic inactivity and boosting investment.
Businesses will enjoy £27bn in tax breaks over three years with the chancellor launching a
new capital allowances regime that enables businesses to write off 100 per cent of capital expenditure against profits before tax.
Economic inactivity was also taken to task. Measures included increasing the cap on tax-free annual pension contributions, and
scrapping the lifetime allowance. Hunt also expanded the 30 hours a week of free childcare to children in England over nine months old with working parents.
Those worried about the health of the City of London will have to wait until autumn for any concrete steps. The chancellor said he would return with “measures to unlock productive investment from defined contribution pension funds and other sources”.
Central banks tread carefully
The UK’s Office for Budget Responsibility remained pretty pessimistic about the UK’s long-term growth prospects. But its
short-term forecasts were more upbeat, suggesting the economy will grow in the second half of 2023 and inflation will drop to 2.9 per cent by the end of the year.
That might give the BoE some headroom to hold off on rate rises when it meets next week. UK labour market data released on Tuesday also showed that
wage growth has cooled, and there has been a drop in economic inactivity and job vacancies.
Policymakers will also need to factor in jittery markets after the collapse of Silicon Valley Bank and Signature Bank. “There is a very good case for the BoE to tread much more cautiously now,” said Thomas Pugh, economist at audit firm RSM, noting that the decision on rates would be a close call.
In the US, before the collapse of SVB and Signature Bank, the stage looked set for the Fed to introduce a half-point rate rise when it meets next week.
US CPI was up 6 per cent year on year in February, with
core inflation also notching up 5.5 per cent annually. In the labour market, the
US economy added 311,000 jobs last month, with wages also up 0.2 per cent compared with January – a slight cooling in growth.
But while policymakers will want to tame persistent inflation, they also need to
balance how much they can tighten up without it affecting financial stability – with some market players predicting no rate rise in March.
Fears of contagion
Last weekend the BoE and government officials scrambled to find a buyer for SVB UK – with
HSBC eventually paying £1 for it.
In some ways the deal was a win-win: no taxpayer money was required and HSBC, which is trying to expand its commercial bank in sectors like tech and life sciences, got a neat customer boost. HSBC chief executive Noel Quinn said the acquisition made
“excellent strategic sense”.
Nevertheless, the collapse was a near miss and the
government now faces questions about how prudent their plans to reduce regulation of the City of London – including easing rules for smaller banks – are.
“The Treasury must be careful not to follow the US example and weaken regulation in the name of competition,” said Lord Nick Macpherson.
Indeed the chair of the SEC, Gary Gensler, on Wednesday said we should
“strengthen the guardrails of finance” after the collapse of SVB. Gensler has proposed a number of new regulations over the past two years, but has faced strong opposition from Wall Street.
Markets are now looking at other banks with caution – and Credit Suisse is on the back foot.
The Swiss
lender’s share price nosedived on Wednesday. Things went awry when, in the wake of SVB’s collapse, the chair of the Saudi National Bank – which has a 10 per cent stake in Credit Suisse – ruled out providing the lender with any more money.
It was left to the Swiss National Bank to open a line – Credit Suisse will
borrow $54bn from the central bank to boost liquidity and calm investors.
But there was misery on misery. Earlier in the week, Credit Suisse published its annual report – which had already been delayed – noting that
“management did not design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements in its financial statements”.
Diversity and proxy battles
There was much celebration when the FTSE 350 hit voluntary gender diversity targets early. Now, attention turns to ethnic diversity with the Parker review publishing its latest results.
Some
96 companies in the FTSE 100 have at least one minority ethnic director on their board – but only 67 per cent of companies in the FTSE 250 managed the same.
The review has now asked FTSE 350 companies to set voluntary targets for ethnic minority executives to hold a proportion of senior management positions by the end of 2027.
For the first time, the UK’s 50 biggest private companies are also coming into scope. They too are being asked to set targets around senior management and commit to having at least one ethnic minority director on their board by the end of 2027.
And finally, activist investor
Carl Icahn has launched a proxy battle at Illumina. The US biotech has seen its value plummet since it acquired cancer-screening start-up Grail.
“This value destruction is a direct result of a series of ill-advised (and frankly inexplicable) actions taken by the board of directors of our company in connection with the acquisition of Grail,” Icahn said in a letter to shareholders. He is set to nominate three directors at the next annual shareholder meeting.
