The first budget of Andy Burnham's government is likely to produce contrasting outcomes for UK stocks, from banks to homebuilders and utilities, with several proposals widely briefed ahead of Wednesday's event.
The prospect of higher bank taxes has put UK financial shares under pressure. Lloyds Banking Group Plc and Nat West Group Plc have the most at stake given their greater exposure to the UK. Proposals include raising the 3% bank surcharge levied on top of the standard corporation tax rate. Goldman Sachs Group Inc. analysts estimate that a rise to 8% would cut Barclays Plc's net profit by 2% to 3%, and by 6% to 7% for Lloyds and Nat West. Homebuilders, meanwhile, have benefited from reports of help for first-time buyers.
Utilities face uncertainty from efforts to lower energy costs and a push for greater control of the UK water industry. Gambling firms including Entain Plc, The Rank Group Plc and Evoke Plc are exposed to an expected rise in machine games duty, which could reach 25% to 40% from 20%. The Social Market Foundation says a 40% rate could raise up to £460 million ($615 million) annually. Chancellor John Healey has ruled out changes to capital gains tax and an extension of the mansion tax, easing headwinds for wealth managers and property stocks.
The bond market is likely to set the tone for the day. If yields rise, rate-sensitive stocks such as banks, insurers and property firms could suffer. Citigroup Inc. strategists said gilt market reaction to fiscal headroom will be the biggest driver for stocks. The FTSE 250 has traded sideways for two months after touching 25,000 in late August, and a sustained break above that level would signal improving risk appetite.
UK retailers will also watch employment costs and business rates. Marks & Spencer Group Plc, Tesco Plc and J Sainsbury Plc are potentially exposed. M&S Chief Executive Officer Stuart Machin has urged Healey to reverse the reduction in the employer National Insurance threshold to £5,000 from £9,100, which he says has hit retailers hard.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing