ECONOMICS

THE BUDGET a stock market view

Sue Whitbread, Stockbroker, Chartwell Asset Management Ltd, Bath, on 22 March 2001

The Budget had been presented on 7 March and, as on so many occasions, opinions on it had changed somewhat after a period of reflection; a newspaper headline : `City grows less convinced by Brown's cry of prudence' providing a typical reaction.

Although only two weeks had elapsed, other major events, such as the foot-and-mouth epidemic in England and the rapid market decline in the USA, were now of more concern to investors.

The speaker summed up the Budget as producing no major changes and considered the announcement last November of changes in the rules for PEPs, which come into operation on 6 April, were the most dramatic feature. Failure to abolish stamp duty on share purchases was deplored as a threat to the London financial markets as a major share trading centre in Europe.

She then considered the turmoil resulting from the decline on Wall Street of 20% over the last two weeks and the possibility of the USA falling into a recession. Combined with the political and economic problems of Japan, which has been in

recession for some years, and the apparent slowdown in Europe, the global picture appears sombre. However, the Chancellor was optimistic in his Budget speech, pointing out that the UK had low inflation, a high level of employment and, with the £3½ bn increase in public expenditure he was announcing, a good chance of maintaining a growth rate of 2¼-2½% in each of the next three years. As noted, the stockmarket is less optimistic and expects a slowdown in growth for the next six months or more because of the effect of the US decline and consequent loss of confidence. Next financial year may achieve the Chancellor's forecast growth rate.

The discussion looked at possible effects of the changes made in the Budget on various groups. The `windfall' of £22bn. from the mobile phone licence auction was noted and considered to be a reserve for use if the economy turned down.

Don Lovell