Forget a U-turn, this is a full 360 by the PM

We are almost back to square one with the decision to reinstate the increase in corporation tax.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Forget U-turn, the prime minister’s actions amount to a full 360. We are almost back to square one with the decision to reinstate the increase in corporation tax from 19% to 25%, drawn up by the previous administration, and to bin the plan to axe the 45% additional rate income tax band. We are now set for another fiscal event on Halloween headed by the new chancellor, Jermey Hunt. Far from spooking the markets, the government will hope that unpicking some of the mini-budget headline and market-quaking announcements will stave off a nightmare before Christmas for the UK economy.

“The UK markets have so far reacted positively to the news. Both the FTSE 100 and FTSE 250 are up. The elephant in the room following the mini-budget was how would the tax-cutting measures be funded after the colossal spend on Covid and cost-of-living support measures. The costings were conspicuously missing from the announcements, and it became clear that significant government borrowing would be required – fuelling concern over the swelling public debt as the cost of borrowing grows. The government will hope that reinstating the increase in corporation tax will show the markets that it is serious about balancing the books.

“The whole saga shows that even long-standing Western democracies are not immune to seismic political and economic shifts. For investors, it lays bare the importance of having well-diversified portfolio, investing across different regions and assets.”

Lee Wild, Head of Equity Strategy, interactive investor, says: “Recent events have shown that politics and markets can be intertwined, and sometimes uncomfortably so. The market’s reaction to the now infamous ‘fiscal event’ has led to so many political U-turns that many investors will be struggling to work out which way they are facing. It seems likely that the next date in the diary, 31 October, will be far less eventful

“Recent events are a stark reminder of the importance of having a well-diversified portfolio. It’s also a reminder of the cyclical nature of some companies. Take housebuilders and retailers such as Barratt Developments (LSE:BDEV), Persimmon (LSE:PSN), Marks & Spencer Group (LSE:MKS) and Ocado Group (LSE:OCDO) – quality cyclical companies whose share prices have been hammered this year, but are bouncing back today. It’s so important to have a blend of strategies so that when some sectors and regions are faltering, other parts of the portfolio can pick up at least some of the slack.”