Emergency mini-budget preview: housebuilders and other stocks on the move

Just days before Kwasi Kwarteng delivers a well-flagged package of emergency measures to tackle the cost-of-living crisis, we look at the share prices already moving sharply.

Floored housebuilding stocks got some respite today on hopes that a stamp duty cut in Friday’s mini-budget will soften the blow of another big hike in UK interest rates.

Persimmon (LSE:PSN), Taylor Wimpey (LSE:TW.) and Barratt Developments (LSE:BDEV) were aided by speculation in The Times that the industry will again be the target of government support measures.

• Read about: Free regular investing | Opening a Stocks & Shares ISA | Cashback Offers

Despite today’s relief rally for the builders, all three blue-chip stocks are below where they started the week as fears over the impact of higher mortgage costs were fuelled on Tuesday by the prospect of a 0.75% hike in the Bank of England base rate tomorrow.

Persimmon has now lost more than 50% of its value this year and Taylor Wimpey over 40%, even though operational performances have been resilient and the sector boasts a strong record of bumper shareholder returns.

• Stockwatch: is this the UK’s best-placed housebuilder?
• ii view: high yielder Persimmon battling economic headwinds
• Growth stocks to buy for a winning 2023

Barratt Developments shares are down 45% so far this year at 416.5p, prompting Liberum to today reiterate its “buy” recommendation alongside a new 535p price target. Its more prudent estimate on house prices in 2024 means that’s lower than the 690p it had in place previously, but the broker has been encouraged by a solid order book in recent results.

It awaits clarification of the government’s economic strategy in the hope that the policies outlined by chancellor Kwasi Kwarteng (pictured above) on Friday will be positive for consumer cash flows. Liberum said: “We continue to expect a slowing, not collapsing, housing market and still see upside in depressed shares.”

According to today’s newspaper report, the cuts to stamp duty are viewed by Whitehall insiders as the “rabbit” in the mini-budget, alongside the widely-trailed plans to reverse a previous national insurance rise and freeze corporation tax.

Stamp duty is currently levied at 2% between £125,000 and £250,00 and at 5% for homes up to £925,000 but during the pandemic the payment threshold was increased to £500,000 in order to help stimulate the property market.

Some brokers and estate agency businesses expressed fear today that the move will push house prices even higher and worsen inflation, meaning that first-time buyers are less likely to realise their dream of home ownership.

Shares in London-focused estate agency business Foxtons Group (LSE:FOXT) were given a lift by the speculation, however, as the All-Share stock improved by just under a penny to 37.4p, International property advisory firm Savills (LSE:SVS) added 3.5p to 909.5p in the FTSE 250 index.

Investors in the retail and hospitality sectors will also be looking for a lift from Friday’s mini-budget, potentially through a reduction in VAT on food and drink sales or a temporary cancellation of business rates.

• Five things to expect from Kwasi Kwarteng's emergency mini-budget
• Daily Trading Flash: 10 most-traded shares 21 September 2022
• Insider: ex-easyJet chief builds stake in two big companies

There was some cheer today when the government announced a cap on energy bills for businesses, although this support appeared to have little bearing on the share prices of FTSE 250-listed pub chains JD Wetherspoon (LSE:JDW) and Mitchells & Butlers (LSE:MAB).

Their subdued response reflects concern that consumer demand will be suppressed if inflationary pressures caused by the government’s support measures result in interest rates staying higher for longer.

Traders are currently pricing in the possibility of a 0.75% increase in the Bank of England’s base rate to 2.5%, the biggest single tightening in 33 years on the road to an eventual high of 4% as policymakers grapple with an inflation rate currently at 9.9%.

An energy price cap for households is expected to keep the CPI inflation two percentage points lower than previously expected at around 11%. But on the growth side, some economists are sceptical about this week’s likely package of tax cuts and deregulation.

Capital Economics said this week: “It’s important to keep in mind that the last time the UK economy grew at 2.5% for a sustained period (in the mid-2000s), the labour force was expanding by around 1% a year.”

The consultancy argues that a key task in raising the UK’s growth rate will require reinvigorating the UK’s labour supply. It said: “That means getting inactive workers back to work and raising inward migration. Without it, the chancellor will be left relying on an implausibly large rebound in productivity to meet his growth target.”