AJ Bell press comment – 17 October 2022
Danni Hewson, AJ Bell financial analyst, comments on the market response to the Chancellor’s emergency statement:
“Markets seem prepared to give Jeremy Hunt the chance to turn back the clock. Sterling is up, gilt yields have fallen sharply, and London’s indices are on the front foot. The new Chancellor has bought the government some breathing space and this morning’s market reaction will have sent a clear message to both the PM and her detractors that ‘Trussonomics’ should never have been seriously considered, at least not whilst the economy is taking such a beating.
“But markets are fickle and two weeks is a long time in economics as in politics. It’s a pretty easy and obvious step to reverse most of those unfunded tax cuts announced in the mini-budget but it’s less straightforward to move the debate along. And that’s where the real risk lies, austerity might not be palatable, but it seems to be on the table. Mr Hunt now needs to find a way to make that policy palatable to a country already feeling the squeeze from their own budgetary issues.
“And for business there will be disappointment, concern and a whole load of questions. Consumer confidence is likely to have taken a beating today as households have their two-year energy safety net slashed by 75%. There’s also concern about the kind of support that might be there for businesses also struggling with spiralling energy prices. Many have already made huge changes to the way they operate, changing premises, cutting opening hours and even closing up shop altogether.
“But housebuilders and house buyers will be doubly relieved, not only are borrowing costs falling today but those changes to stamp duty will remain. Whether mortgage rates will feel the benefit of today’s market movements is something that will only become evident with the passage of time.
“Inflation is still devastatingly high and interest rates are expected to keep ticking up as the Bank of England wages its own war. But at least the government and central bank are now in lockstep after this weekend’s meeting of minds.
“Mr Hunt said he can’t control market volatility, but he can play his part. He might have been pulled in as compromise in an effort to re-establish some credibility, but he’s certainly taken centre stage, at least for now.”
