UK Coronavirus Budget - Will It Go Far Enough?
Fiona Cincotta March 10, 2020 1:32 PM
Will Rishi Sunak's Budget go far enough to stem coronavirus recession fears?
The Chancellor of the Exchequer Rishi Sunak is set to unveil the UK Budget on Wednesday. The circumstances surrounding the Budget have change significantly over the past few weeks. This year’s budget now comes at a unique time when not only is the UK preparing for its future outside of the EU but also amid growing anxieties surrounding the outbreak of coronavirus.
Coronavirus is expected to cause a slowdown in demand amid increased worker isolation and/or illness meaning firms’ cashflow could take a hit. Keeping smaller firms afloat will be a key focus as will safeguarding the fragile recovery in business confidence since the election.
There is growing speculation that the BoE could announce stimulus in coordination with the Budget. Incoming BoE Governor said last week that here should be a coordinate response. We don’t expect this to happen firstly because it raises questions over the central banks’ independence. Secondly, because Andrew Bailey also said that he would prefer more evidence before taking a decision to cut rates. This makes us believe that the BoE will wait until the meeting at the end of the month, or potentially longer.
The pound has held up reasonably well amid the coronavirus outbreak in part because of the calm approach from the BoE and in part amid expectation of firm supportive fiscal policies from the Government. The pound could take a hit if the market believes that the budget doesn’t go far enough in tackling coronavirus or limiting its economic impact. Under these circumstances we could see GBP/USD head back towards $1.28. Otherwise the pound is expected to remain stable around the $1.30 until we hear more from BoE.

Business rates will be a key theme given the dire state of the UK retail sector and the massive disadvantage that stores with a large footprint endure. Attempts to level up the playing field for bricks and mortar retailers versus the online competition could see these stocks jump. As an example, Tesco pays £700 million in business rates every year. Rate relief details will be scrutinised closely.
Housebuilders
With Help to buy due to come to an end in 3 years’ time, investors will be keen to see what else the government has up their sleeve to help the sector. 300,000 homes a year by 2025 or shifting stamp duty to sellers will hoped for. However, given that the government is looking to build more houses and stabilise prices construction material firms could see more upside than housebuilders, given that the latter looks for hour price increases for improved margins.
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