Market report: UK tax cuts, hokey-cokey at Open AI and FTSE reshuffle
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “A muted early trading session is expected for the FTSE 100 as the rumour mill continues to grind about the seasoning Jeremy Hunt plans to sprinkle into the UK economy to try and improve its growth prospects. Investors will be highly attuned to what the Chancellor plans as part of that recipe and tax cuts now look set to be a key ingredient, even though they risk turning up the heat on inflation.
With borrowing this fiscal year coming around £17bn under forecasts, cuts to national insurance are now mooted. This tax has been all over the place in recent years, with a hike followed by cuts in rapid succession. A further cut, if it comes, will make a difference to the money in people’s pockets. But increasing spending power also ups the inflationary risks just as the Bank of England is warning about the stubborn nature of the price spiral. The Governor, Andrew Bailey told MPs in parliament that threat of UK inflation is being underestimated. However, the Chancellor has his eye on the next election, and looks unlikely to resist the opportunity for a giveaway.
The other tax rabbit which looks set to be pulled out of the chancellor’s hat is for full expensing for businesses to be made permanent. This was a temporary measure brought in allowing firms to set 100% of their capital expenditure off against tax immediately. If it is, as rumoured made permanent it should not only help with immediate cash flow but also enable businesses to make commitments stretching far further into the future, particularly given the imminent hike in corporation tax.
A shake up in ISAs, the tax wrappers of savings and stocks and shares investments, would also be highly welcome with a big consultation expected to be launched. This should provide a boost for UK-listed companies and a potential reboot for London. Ministers are keen to clearly want to inject a big dose of energy into the City, but just how it’s approached could make all the difference. A rise in the ISA allowance level in line with inflation, would be an effective shot in the arm for retail investors, especially those hit by cuts in the allowances for dividends and capital gains tax.
Open AI moves to end turmoil
The Open AI hokey cokey dance has taken another twist – with Sam Altman, in, out and then apparently back in again. The chaos at Open AI has shaken up the industry. It’s even prompted Microsoft’s CEO to declare that Microsoft was self-sufficient and would continue to excel even if Open AI disappeared tomorrow. Given the call to arms by staff and threats of a mass exodus if Altman was not brought back, the company clearly realised it risked an existential moment. The root of the dispute is thought to be a conflict between the speed of growth and safety concerns surrounding intelligent bots. Given he’s walked back through the revolving door, Sam Altman’s views about how to run the company will dominate future direction, especially given he’ll be supervised under a new board.
FTSE Review runners and riders
The runners and riders are jostling for position for next week’s FTSE reshuffle. The FTSE Russell review is based on the closing prices on Tuesday 28 November, with changes taking effect after the close on Friday 15 December.
Intermediate Capital Group posted strong first half profits which look set to help into the FTSE 100, to potentially replace RS Group or Hargreaves Lansdown. Total Assets under management at Intermediate Capital reached $81bn, up 3% since the start of the year.
CAB Payments looks set to leave the FTSE 250 given a loss of confidence in the firm after its profit warning following so hot on the heels of its IPO. CAB payments is now pledging to hit a revised 2023 revenue target for the year but given a trading update is not due in January, it’s deep in the relegation zone alongside Liontrust Asset Management, property company CLS Holdings and betting firm 888. The William Hill owner saw shares decline after it cut guidance for revenue in the latest update. 888 is feeling the effect of tougher new rules to reduce the number of problem gamblers in the UK, and higher costs to meet compliance in other markets. But it’s also blaming ‘customer-friendly’ sport results for its forecast 10% fall in third quarter revenue.
Asia Dragon Trust, Tullow Oil, Hochschild Mining, and Halfords look set to be scrambling for a position in the FTSE 250. Halfords shares have been helped by a recent trading update showing positive signs against a challenging economic backdrop The shift towards more reliable, service-based revenue at the UK’s largest bike and motoring services retailer looks to be paying off. It’s fuelled growth of 7.8% in like-for-like sales in the first quarter of its financial year.’’
