It always takes a short while for the dust to settle on a Chancellor’s set-piece speech. The best Budget coverage is usually in the weekend papers after everyone has had a chance to think through the blizzard of promises on the day itself.

Yesterday’s mini-Budget was no exception to this general rule. The initial response of most observers was that the Chancellor struck the right tone and played his difficult hand as well as he might have. The bigger question is whether it will be enough to put the UK economy back on an even post-pandemic keel.

So how do the main measures stack up a day on?

The biggest challenge facing the Chancellor is keeping people in work this autumn. If he can help nine million furloughed workers stay in their jobs, pretty much everything else will fall into place. If he cannot, the negative feedback loop highlighted by the Bank of England’s chief economist Andy Haldane will kick in. Higher unemployment will lead to lower spending and back again to even higher unemployment.

Offering £1,000 to employers who keep furloughed workers on their books until January might feel like a token gesture to a business that’s looking down the barrel of a cash-flow crisis. It is hard to see that by itself this will prevent a sharp rise in unemployment once the furlough scheme ends in October. The same could be said of the £2bn ‘kickstart’ scheme for new jobs. Six months wages sounds like a great incentive to take a young worker on but you will only do this if you think the outlook will be materially better next year.

So, the more important part of the Chancellor’s proposal is his bid to support the hospitality and tourism sectors through the next few difficult months. These are big employers. Perhaps more importantly, they are a short-term safety net for people laid off in other sectors. Getting people back into pubs, restaurants, cinemas and the like is, therefore, a sensible target for immediate support. It’s a much better use of funds than the general handouts employed in places like the US and Japan, where much of the money does not get where it is most needed.

The VAT cut from 20% to 5% is sensible but probably not a game-changer. If you are concerned about sitting next to strangers in a bar or cinema then a 12.5% price-cut (which is what this represents) is a nice to have but probably won’t change your mind.

More interesting is the £10 per person ‘eat out to help out’ bonus for the month of August (not for booze, only Monday to Wednesday). For a family of four enjoying a pizza night out, it’s a meaningful saving. At the margin it will get some people onto the High Street who would otherwise have stayed at home for a few weeks more. Some of them will decide that going out is a bit safer than they imagined.

The third element of the speech, boosting the housing market, is great news for anyone who manages to complete a purchase before next March. For a first-time buyer in London, it might amount to a saving of £7,000 or so. Again, at the margin this will provide a big boost to an important pillar of the UK economy.

But put it all together and the package feels a bit underwhelming. The Chancellor looks like a man who is slowly remembering his ideological convictions. Whether his modest move back towards Conservative orthodoxy survives an autumn surge in the jobless numbers remains to be seen. It is hard to see how the economy will be strong enough to handle even a tentative return to balancing the books with higher taxes by the time of the Budget.

For now, the pitch-perfect Chancellor has been given the benefit of the doubt by a country that’s reassured by his seriousness. His political capital will most likely depreciate over time as his next door neighbour’s in Downing Street already has.

For investors in the UK stock market, the measures clearly present some opportunities. In my forthcoming Investment Outlook, I point to three key considerations: the winners from short-term stimulus; the beneficiaries of longer-term change that has been accelerated by the pandemic; and companies that are best placed for the more inflationary environment that must surely result from the abandonment of pre-crisis fiscal and monetary targets.

We have seen some of the short-term winners in the form of supermarkets and housebuilders. The better placed hospitality businesses could now fall into this group. The medium-term beneficiaries will be in areas like technology and healthcare and parts of the real estate world that can think most creatively about the changing worlds of work and consumption. As for the inflationary question, well that is one for tomorrow. The short-term challenges make that a problem for another day.

For investors in the UK, this does not sound like a particularly appealing backdrop. But we should always remember that there is a price for everything. The FTSE 100 stands 18% below the level at which it started the year. The S&P 500 is just 2% off its New Year starting point. Quite a lot of bad news is surely now priced into the UK market.

Five year performance

(%)As at 30 June

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

FTSE 100

3.8

16.9

8.7

1.6

-13.8

S&P 500

4.0

17.9

14.4

10.4

7.5


Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns as at 30.6.20, in local currency

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