All Eyes on Westminster Ahead of Hunt’s Autumn Statement

Autumn statement released in Westminster later today, ECB warn of high levels of commercial property sector debt, and a focus on the Fed minutes.

All eyes are on Westminster today ahead of the much-anticipated Autumn Statement, where the Chancellor Jeremy Hunt is expected to unveil some fiscal loosening measures. As we looked at earlier this week, the Autumn Statement comes as the tax burden on households and businesses stands at it its highest level in 70 years, though with debt-to-gdp just shy of 100%, interest payments on government debt surging, and growth expected to remain sluggish next year, the Treasury continue to face headwinds. The impact of fiscal drag, given rising inflation and wages have however seen tax receipts come in higher than expected, potentially giving No.11 more wiggle room. For example, yesterday we learnt how tax receipts over October were £76.9bn – representing an increase of £2.5bn from last year and £1.5bn more than the OBR forecast.

Headlines are continuing to circulate on the expectation that Hunt will introduce a permanent extension to ‘Full Expensing’ which was due to cease in 2026. Full Expensing allows firms to deduct spending on IT infrastructure, machinery, and plant from taxable profits. According to the OBR, the measures could increase business investment as much as 3% a year, and thus it is hoped that the measure to permanently extend the policy would provide a much-needed boost for British business and investment.

A 9.8% increase in the minimum wage has also been announced. This will bring the NMW to £11.44 per hour and will be extended to those aged between 21 and 22 and would equate to a rise of around £1,800 a year if someone is working full time on minimum wage.

Elsewhere, there is also speculation on whether Hunt will announce some easing of National Insurance contributions. Presently, NI contributions are 12% on those earning between £12,570 and £50,268 – having been reduced marginally from the 13.25% level introduced in November 2022.

Much of the recent commentary around the Statement has also centred on plans to unveil an increase to the ISA allowance under a so-called ‘‘Great British ISA’. Here, it is expected that people may be provided with an additional £5,000 limit on their ISA each year on the basis that funds are invested into UK-listed companies. Proponents of this policy hope that the measures would provide a boost for UK stock market at a time when many investors are keen to see an increase in their ISA allowance. As such, focus remains heavily on Westminster ahead of Hunt’s statement at around 12:30 this afternoon.

Frankfurt Raises Concern Over Commercial Property Sector

Ahead of the EU’s Financial Stability Review published later today, yesterday the EBC published an excerpt warning over high levels of debt across the continent’s commercial property sector. Across the currency union, the debt burden within the commercial property market is now higher than pre-2008 levels the sector adjusts to tighter monetary conditions, property values falling, incomes from rent waning, and post-pandemic demand side changes. Given that 10% of bank loans in the Eurozone are associated with the commercial property sector, any stresses within the market are likely to have far reaching consequences across the finical sector. Though banks’ exposure in commercial property is less than that of residential (which accounts for 30% of combined bank loans), the ECB indicated that the risks facing the former were more prominent. Here, the report stressed that the commercial property markets “have the potential to significantly amplify an adverse scenario, increasing the likelihood of systemically relevant losses being incurred in the banking system”.

Fed Minutes

Yesterday evening saw the release of the FOMC minutes from their meeting on 1 November, where the Fed met market expectations in maintaining their benchmark policy target rate of 5.25-5.5% at its highest level in 22 years. The document illustrated how policy makers saw rates remaining high for some time and that the central bank should remain cautious in their strategy. Unsurprisingly, the Fed remained resolute in how their future monetary path would be data dependent. For example, the minutes stated that “participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee’s inflation objective was insufficient”.

Regarding inflation, the minutes stated how “consumer price inflation remained elevated but continued to show signs of slowing”. According to their latest inflation print, annualised CPI eased to 3.2%, against expectations of 3.3%, falling 50bps from September’s print and marking the lowest headline inflation since July. On a monthly basis, US Consumer Price Index eased to 0% over October, having fallen 40bps from last month’s print and missing expectations of 0.1%. The release of the minutes did little to move the dial in market rate expectations, with less than a 6% chance of a rate hike being priced in at their policy meeting on 13 December.