Interactive Investor

interactive investor: A ‘blow the budget’ budget

11th March 2020 12:37

Rebecca O'Keeffe from interactive investor


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Rebecca O’Keeffe, Head of Investment, shares her views on the Budget.

Commenting on the Spring Budget announcements, Rebecca O’Keeffe, Head of Investment, interactive investor, says: “The new Chancellor has reversed a decade of austerity in a ‘blow the budget’ budget. 

“While UK Budgets are usually put together between 10 and 11 Downing Street, this was clearly a coordinated strike between the Treasury and the Bank of England. This is the biggest fiscal and monetary stimulus that the country has seen since 2009 – so it should be good news for investors, if the infrastructure and building companies can keep up!

“Mr Sunak’s Budget is one of huge fiscal stimulus, in large part coming via investment in infrastructure. For the UK construction industry, this represents an abrupt shift from famine to feast. With most of the main UK construction companies currently on their knees due to the pain and suffering they have felt over the past decade, it is not at all clear that UK plc has the necessary capacity to deliver on many of the Chancellor’s very generous promises. 

“In terms of the Bank of England response, while the headlines have all concentrated on the rate cut, the cut itself is actually a relatively minor part of the move by the Bank of England this morning. 

“Freeing up close to £300 billion of net new lending to support UK businesses and households is precisely what the UK economy needs during a period of savage but (hopefully) short recession.  Banks will clearly be encouraged to make the most of this new liquidity for term lending to UK plc and UK households. They are implicitly part of this emergency liquidity package.

“The 2008-9 financial crisis was essentially a banking crisis.  Since then, both central and commercial banks have been perpetually planning for a worst-case scenario, and a massive reduction in risk-appetite across the banking system means it is much less at-risk now.  Relative to the previous crisis, the banking system is much stronger, and ultra-low risk, putting it in an ideal position to help tide the real economy over the short-sharp shock of the Covid-19 virus.  

“Just as central banks discouraged excessive risk-taking during the good times, now it is encouraging lending in a time of economic stress.  This is precisely what the counter-cyclical credit buffer is all about.

“This time around, the banking system should be part of the solution, not part of the problem. In concert with a huge ‘blow the budget’ budget, the hope is that it should therefore be a V-shaped recession.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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