​​​What to expect post Wednesday’s UK budget?

​Regarding the UK’s upcoming budget on Wednesday 30 October around 12:30pm, the Labour government has attempted to manage expectations ahead of its first budget in 14 years by releasing negative information early, similar to how companies provide advance information to guide stakeholders. This approach is seen as a response to the Labour Party’s recognition of the potential to unsettle financial markets.

​The disastrous Conservative Party “mini-Budget” from two years ago, which caused significant economic turmoil and a sharp depreciation in the British pound sterling, has made the new government more cautious. This caution is reflected in their pledge not to increase headline rates for income tax, VAT, and National Insurance.

​Instead the UK government will probably raise taxes by less noticeable methods, such as increasing National Insurance contributions from employers.

​Sell the rumour, buy the fact

​It is likely that the UK stock market, pound sterling and UK bond market have already absorbed much of the anticipated negative news, and any “stealth” taxes are likely to have a limited effect on these.

​Furthermore the timing of the announcement could be beneficial for both the country and investors, as it will provide clarity and reduce uncertainty. This could potentially lead to a relief rally in UK stocks, an appreciation in sterling and 2 and 10-year Gilt yields softening from their recent multi-month highs as investors perhaps realise that their concerns regarding increased UK borrowing costs may not materialise.

​Within the UK stock market certain sectors will likely be more affected than others, though. For example, gambling companies and wealth management firms could face challenges, but the latter may also benefit from increased demand for financial advice due to potential tax changes. Among the companies that could benefit is the UK’s largest financial advisor St. James’s Place, its share price already up around 27% year-to-date (YTD).

​UK gambling stocks have generally been sold off over the past few weeks amid fears of the UK budget cracking down on the industry but their share prices nonetheless remain mixed. For example, FTSE 100-listed Flutter Entertainment’s share price is up around 25% year-to-date as its US expansion is bearing fruit, but Entain, the Ladbrokes owner, is down around 27% YTD as the betting company is likely to bear the brunt of any possible crack down on the UK gambling industry.

​What is widely anticipated is that the UK budget is expected to impact capital gains tax (CGT) rates, with speculation about potential large increases raising concerns about disincentivising investment.

​It is worth noting, though, that most FTSE 100 companies generate the majority of their revenue outside the UK, which would minimise the impact of the UK budget in general as well as potential increases in employer National Insurance contributions specifically.

​The expectations for announcements regarding infrastructure investments and planning reforms, which could potentially boost related sectors such as housing stocks, could lead to increased UK growth and thus an appreciation in the pound sterling.

​Chancellor Rachel Reeves’ just announced £500m top-up for the Affordable Homes Programme (AHP) and five-year rent settlement for social housing providers could help boost the share price of top UK house builders such as the country’s largest Barratt Redrow which YTD is down 14% and thus greatly underperforming that of its peers.

​Top five UK home-building companies by revenue and their year-to-date share prices