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Yesterday’s Budget was delivered in the context of a global economy which is still growing but which is adjusting to the tapering of the uplift provided by quantitative easing and historically low interest rates. Political influences are creating uncertainty with the outcome of US trade policy and the details of Brexit undecided at this time.

UK economic growth forecasts remain modest with the Office for Budget Responsibility (OBR) predicting 1.6% growth next year and 1.4% in 2020. The OBR also upgraded its short-term outlook for public finances, estimating a £11.9 billion undershoot in this year’s government borrowing. This reflects higher employment and stronger tax revenues. Taking the uncertain economic and political environment into account, and with the possibility of a General Election in mind, the Chancellor decided increase government spending with this windfall. This could provide a modest boost to GDP growth next year and perhaps temper any disruption to the economy as Brexit plays out.

The main policy announcements were:

From April 2019: An increase in the personal allowance threshold at which 20% income tax must be paid to £12,500 from £11,850. An increase to the higher rate income tax threshold at which 40% income tax must be paid to £50,000 from £46,350. Confirmation of a £20 billion increase in NHS funding by 2020. £500m for the Housing Infrastructure Fund, designed to enable a further 650,000 homes to be built. All first-time buyers purchasing shared equity homes priced up to £500,000 to be exempt from stamp duty. An extra £1 billion for defence. A freeze to fuel duties – a welcome break at a time of relatively high petrol prices. Good news for those who enjoy beer, cider and spirts with no increase to duties; no break for wine though with duties to increase in line with inflation – although the impact would be modest at current rates at about 8p per bottle.

A “Digital Services Tax” for social media platforms, internet marketplaces and search engines with more than £500 million in revenues comes into force in April 2020. The government’s view is that large global technology companies such as Facebook, Amazon and Alphabet/Google are paying insufficient tax relative to the profits they are generating from UK business. A 30% increase in infrastructure spending. An end to Private Finance Initiative (PFI) deals (existing contracts will be honoured). The government will work with the private sector to develop new ways to finance infrastructure partnerships. There were no major changes to pensions and investments policy, following some fairly significant changes over the last few years.

The Budget was received positively by the market and the FTSE 100 closed at 7,035, up 1.4%.

This article is for information purposes only. It does not constitute investment advice and is not a recommendation for investment. The value of your investment and the income from them may go down as well as up and you could back less than you invested.

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