3 takeaways from the UK mini-budget that will impact the stock market

Jon Smith reviews the announcements from the Chancellor this morning and shares how he thinks it will help the stock market.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

This morning, Chancellor Kwasi Kwarteng outlined a package of fiscal measures that should help to boost the UK economy. It has been dubbed a mini-budget, as usually we don’t have such announcements made outside of the customary Budget. With a range of measures announced, there are some clear implications on the stock market. Here’s my take on what it could mean for my investments.

A positive for property stocks

One of the policies that has come into effect today is the cut in stamp duty. At the moment, it kicks in above £125k, but this is going to be doubled to £250k. For first-time buyers, the threshold is heading to £425k. This means that prospective buyers will find it cheaper to buy property, as the amount to pay in stamp duty is lower reduced.

I see this as a positive sign for property stocks. This ranges from homebuilders to listed estate agents. Some of these stocks have been under pressure recently, as the gloomy outlook for the economy and higher mortgage rates have become apparent. Yet this measure today should help. It should feed through into more commitment to buy houses as it becomes more affordable.

It’s something that’s instant, so buyers can take advantage of it today. I should note that interest rates are still likely to rise further from current levels. This remains the main risk I see for property stocks over the next year, as high mortgage rates could hinder activity.

Income tax cut benefits consumers

From April next year, the basic rate of income tax will decrease from 20p to 19p. The 45p higher rate of tax is going to be reduced. Fundamentally, this means that we all should pay less in tax. We’ll have more in our pockets each month to spend on whatever we want.

At a broad level, this should be taken as a good sign for investors, as the stock market should benefit. In terms of specific sectors, I think this will help the travel and tourism industry. If I know that I’m going to get an extra £100 (or whatever the figure is) each month, I think a lot of people will put this towards a holiday.

Also, I think it will benefit retail trading platforms and wealth managers. Some people might be prudent and use the extra money to invest in the market.

Given that household bills are rising, it might be the case that the extra cash simply goes towards paying down debt and paying bills. Consequently, I might not see the full benefit in some areas of the economy.

Action should help the stock market

I think that one of the reasons for underperformance in the stock market recently has been the political uncertainty. Finally, we have a situation where a new Prime Minister is in place. Now we have the mini-budget setting out tax breaks. I’m not saying that we’re going to avert a recession, but the fact that we have more clarity and action is a good thing.

For an investor like me, it gives renewed confidence in investing for the long term. My strategy this year of buying on dips is one that I’m going to keep using from here.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »