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Hunt’s Budget

Thought for Thursday, few surprises from Hunt's budget yesterday, this afternoon's monetary policy meeting at the ECB, and global high temperature records in February.

Thought for Thursday

“Do not save what is left after spending, but spend what is left after saving”. – Warren Buffett

Hunt’s Budget

Such was the level of information leaked prior to the Chancellor of the Exchequer Jeremy Hunt’s Budget yesterday, few surprises were thrown at the dispatch box. Headlines this morning are centring on the how the British workforce have been handed a £10bn a year tax break with Hunt’s decision to cut National Insurance Contributions by 2p at the forefront of this. For employees this will reduce the tax from 10% to 8%, and for the self-employed will cut it from 8% to 6%.

According to some sources, Hunt’s speech yesterday alluded to the possibility of further cuts to National Insurance Contributions. For example, the Telegraph writes that Hunt “signals end of National Insurance” which is now the “centrepiece of the conservative re-election bid”. According to a range of opinion polls, as of 4 March the Conservatives remain some 20pts behind Labour.

The measures, according to Hunt equate to an annual tax-break of £450 for those on an average salary. Meanwhile, according to The Office for Budget Responsibility the measures are expected to put an extra 200,000 people in work and increase GDP per capita by 0.4%.

Helping to fund some of the tax break is the decision to abolish the Non-Dom Status and replace it with a new ‘modern residency’ scheme which Hunt says will raise £2.7bn per annum. According to the IFS there are presently 37,000 people currently claiming non-dom tax status.

Other measures include the continuation of a freeze on fuel duty for another year (which would otherwise have ended in March) and the continuation of a freeze on alcohol duty to February 2025 (which would otherwise have ended in March).

The VAT registration threshold will also be raised from £85k to £90k from 1 April while the higher rate of capital gains tax on residential property was reduced four percentage points from 28% to 24%. The Treasury’s windfall tax on oil and gas profits will also be extended to 2029 and Hunt will lay out plans for a British ISA.

According to Hunt, the plans laid out yesterday will help to bring debt to below 94% by 2028/2029, though with a General Election looming, the end of the decade no doubt feels like a long way away for those in No.11.

ECB Monetary Policy Meeting

At 1315 this afternoon, attention will turn to the ECB’s monetary policy meeting. Here, the market is expecting the central bank to hold rates for the fourth consecutive time which would keep their main refinancing operations rate at 4.5%, and their marginal lending facility and deposit facility is at 4.75% and 4%, respectively. The forecasted fourth hold comes on the back end of the ECB latest tightening cycle which involved 10-consecutive rate hikes from July 2022,

With the main refinancing rate at a 22-year high and headline inflation easing to 2.6% across the eurozone, market attention continues to be centred on the ECB’s future monetary pathway and the extent to which the central bank will cut rates over the coming quarters. The ECB continue to tread a precarious tightrope however with doves considering poor growth from the power houses of France and Germany, while hawks continue to weigh up the elevated level of core inflation which currently stands at 3.9%.

Hottest February on Record

Research from the EU’s climate service has shown that February 2024 was globally the warmest on record while global sea surface temperatures were also at record highs. Here, the Copernicus Climate Change Service identified that February was “1.77°C warmer than an estimate of the February average for 1850-1900, the designated pre-industrial reference period.” Following months of records being broken, between March 2023 and February 2024, global warming reached 1.56C above the pre-industrial average.

This comes against the target laid out during the Paris COP21 conference in 2015 which saw leaders around the world pledge to keep global warming within a 1.5C threshold of preindustrial levels.

The survey also identified that the Arctic sea ice extent was 2% below average and Antarctic sea ice was 28% below average over the February 2024 period. This comes as the average global sea surface temperature was registered as being the highest for any monthly period with a new absolute high also being set at over 21°C.

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