Today saw UK Chancellor Rishi Sunak delivering his second Budget for the country. It was an important announcement as it came near the end of the UK’s third Covid-19 lockdown, and with the nation experiencing the worst economic slowdown in 300 years. Sunak had a tough job on his hands as he sought to balance the books after large amounts of government pandemic spending. He also needed to put measures in place to support the economy as it reopens in the next few months.
What is the UK Budget and why does it matter?
The Budget of the United Kingdom is the government’s chance to outline its latest plans for taxation, business rates and other things such as changes to the benefits system or minimum wage.
Public sector debt rose above £2trn at the end of October 2020, which was 100 per cent of the country’s GDP, and the highest level since 1960.
For the UK economy, this is a chance to rebuild from the pandemic and change the way some sectors work, such as retail and hospitality, which have been hit harder than others. With this in mind, the measures announced have to address the concerns of many different parties that have suffered in different ways from the lockdowns.
What was in the 2021 Budget?
Rishi Sunak started his speech by reminding politicians of the task at hand. He said that the government had provided £280bn of support but the damage had been "acute" with 700,000 jobs losses and the economy shrunk by 10 per cent. He said he was delivering “a three-point plan” to support people in the crisis, fix the public finances and rebuild the economy.
The measures taken so far have worked, he said, with the UK’s Office for Budget Responsibility (OBR) forecasting a return to the pre-virus level of economic activity by the middle of 2022. Mr Sunak said it will take the UK "a long time to recover" but he will do "whatever it takes".
The Chancellor announced corporation tax will rise from 19 per cent to 25 per cent from 2023. He added that the UK will still have the lowest corporation tax in the G7, clearly signalling the country should still be considered an attractive investment location. Sunak is also creating a Small Profits Rate to ensure only businesses with profits over £250,000 are subject to the new rate. "That means only 10 per cent of all companies will pay the full higher rate," he said.
Income tax is another focal point of the Budget, and the Chancellor has kept both thresholds at the same rate until 2026. This is important for consumers – they get to keep the same level of wages and it will help the ailing retail sector. The Bank of England has said that households built up over £125bn in savings during the lockdowns and this measure will help the retail and hospitality sectors when restrictions are lifted.
The business rates exclusion will continue through to the end of June, and for the remainder of the year these rates will still be discounted by two-thirds. VAT will stay at the reduced rate of 5 per cent until September 30, before moving to 12 per cent until April 2022.
The government’s duty on fuel and alcohol will also be frozen in an attempt to keep living costs lower.
On jobs, the Chancellor has announced an extension to the country’s furlough programme into the end of September 2021. The government has spent £58bn supporting the wages of furloughed workers and this will continue. The jobs market is still fragile with the unemployment rate remaining above 5 per cent at the end of 2020.
Youth unemployment is an issue in the country, with a steady rise to over 14 per cent currently. New programmes have been announced to increase access and support for trainee roles and apprenticeships. £126m will be spent on tripling the number of traineeships, while businesses will be given £3,000 for all new apprentice hires.
How does the Budget affect the country’s economy, politics and financial markets?
The UK Budget sets the tone for the business year and is a balancing act between stimulating growth in the economy, while accounting for government spending and taxes. High rates of tax and large amounts of red tape can choke a country’s growth and in the economic arena, the Budget plays a big part in getting politicians elected, as markets and consumers want to be part of a growing economy with an improving personal prosperity level.
The Budget is a huge driver of UK stock market predictions and the British pound forecast because it determines the business and consumer environment for the financial year ahead. The headline is in taxation, where corporate taxes can be raised or dropped, while other taxes, such as capital gains or national insurance, can affect how much consumers will have to spend.
In the last decade, the mortgage industry has played a big part in the country’s economy, and efforts to stimulate that sector and increase homebuilding are common. This plays into banking stocks and construction stocks. Freezes on VAT and beer duty can be a boost for the pub trade and the hospitality sector.
The Budget also plays a big part in how the pound will be valued on global markets and alongside the bond markets, and how it stacks up as an investment destination.
After the Budget was reported, the British pound was 0.35 per cent higher against the euro, with the EUR/GBP changing hands at 0.8635, while the UK’s FTSE 100 Index, of the top shares in the country, traded 10 points higher, or 0.15 per cent. This implies investors are cautiously assuming that the Chancellor’s plans will deliver the economic boost needed. The corporate tax issue is likely the main drag on shares and the pound.
How to trade UK markets with Capital.com
You can start trading the British pound as well as the most prominent UK stocks with contracts for difference (CFDs) at Capital.com today. CFDs allow you to go long or short, giving the opportunity to profit from both positive and negative price fluctuations.
Choose from the wide range of currency pairings available, including GBP/USD, EUR/GBP, GBP/AUD, GBP/NZD and GBP/JPY, or browse our extensive offering of stocks, such as Barclays (BARC), BP (BP), Prudential (PRU), Tesco (TSCO), Rio Tinto (RIO), Unilever (ULVR) and AstraZeneca (AZN). You can also get your hands on the world-renowned FTSE 100 Index (UK100), a stock market index of the 100 companies with the largest market capitalisation listed on the London Stock Exchange.
Trade UK 100 - UK100 CFD
Note that CFDs are a leveraged product, therefore both profits and losses are maximised.
Learn more about trading forex and shares with CFDs by reading our comprehensive guides. Open an account at Capital.com and stay up-to-date with the latest market news, developments and trends to spot the best levels to open a profitable CFD trade.