Markets update: Fresh nervousness among investors following Labour’s Budget
Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’Fresh nervousness has crept into markets about the prospects for the UK economy, just a day after Rachel Reeves delivered Labour’s first Budget for 14 years. Initial financial market reaction was sanguine, but investors appear to have taken flight after picking over the bones of the huge tax and spending plans.
The Budget is aimed at promoting growth and supporting ‘working people’ but the worry is that after an initial spurt of investment-propelled activity, businesses might pull up the drawbridge and become more conservative, due to higher wage costs. Companies that made gains during the Budget speech have seen those erased, with shares in hospitality firms and retailers falling into the red, particularly those with high headcounts. With employers bearing the brunt of tax rises, through increased National Insurance contributions, profits are likely to be lower, or wage growth curtailed, which could have a knock-on effect on spending.
Expectations for interest rate cuts have been scaled back, given projections that the Budget could push up inflation over the next two years. Financial markets are now not expecting rates to fall below 4% until 2026. This has been reflected in the spike in UK gilt yields to some extent, but given that sterling has remained lower against the dollar, it also indicates that there is a growing nervousness about the way Labour is steering the economy. The quiet optimism that appeared to be spreading during Rachel Reeves’ speech has evaporated and a higher risk premium has returned for UK debt. Bond yields are set to stay volatile, as institutions financing government borrowing keep a more suspicious eye trained on what the swollen investment budget will be spent on.
Uber’s results disappointed the market, mainly due to the slower growth in gross bookings. High interest rates have taken their toll on consumers, who’ve also had to cope with higher prices right across their finances and some are now looking to cut back on unnecessary spending. This wasn’t a major miss, but it seems a shift towards cheaper travel has begun, and investors fear a bit of weakness might still be to come. Uber has its fingers in a lot of pies, however, from freight to delivery services, in a quest to be a one stop shop for life’s essentials. This diversification should help it ride out the ups and downs, which will inevitably keep coming.’’
