A downgrade to economic growth and extra provisions for Brexit negotiations were balanced by a number of new ‘rabbit’ schemes including changes to stamp duty and the lack of changes to pensions. 
In the Budget announced on Wednesday, chancellor of the exchequer Philip Hammond announced new policies aimed at stimulating growth and tackling several other pressing issues.
However, the headline disappointment from the Budget was that the independent Office for Budget Responsibility (OBR) responsibility has revised down forecasts across the board.
In his speech, Hammond said: “The OBR has assumed at each of the last 16 fiscal events that productivity growth would return to its pre-crisis trend of about 2 per cent a year, but it has remained stubbornly flat.
“So today they revise down the outlook for productivity growth, business investment, and GDP growth across the forecast period.”
As such, the OBR now forecasts GDP growth of 1.5 per cent in 2017, 1.4 per cent in 2018, 1.3 per cent in both 2019 and 2020, before rising to 1.5 per cent in 2021 and 1.6 per cent in 2022.
Ian Kernohan, economist at Royal London Asset Management, said: “The OBR has downgraded its view on the prospects for economic growth over the next few years to an extent that would probably not have happened when Budget forecasts were made by the Treasury.”
“The downgrades to economic growth and productivity are significant and are symptomatic of the fragility of the economy and there is little promise of improvement,” Premier Asset Management chief investment officer Neil Birrell added.
Liontrust’s John Husselbee said the figures were particularly disappointing in the context of global growth, which has seen all 45 countries tracked by the OECD [Organisation for Economic Cooperation & Development] on pace to register growth in 2017 and two-thirds of these accelerating from 2016.
“This is the first time since 2007 that all these countries are growing in sync and the highest number in acceleration mode since 2010, when many enjoyed a fleeting bounce from the financial crisis,” the head of multi-asset said.
“The fact the UK is among the few decelerating economies perhaps indicates headwinds caused by the Brexit-shaped elephant in the room and, like everyone, I am keen for that situation to be resolved as soon as possible.”
It wasn’t all bad news, with deficit reduction remaining on track, with debt as a percentage to GDP expected to peak at 86.5 per cent this year.
Meanwhile the deficit will fall from 2.4 per cent of GDP this year to 1.3 per cent by 2012/22, Hammond noted, though he said the debt level is still too high.
“We need to get it down, not for some ideological reason, but because excessive debt undermines our economic security, leaving us vulnerable to shocks,” Hammond said.
RLAM’s Kernohan noted: “Deficit forecasts have been reduced in the near term and total government debt is expected to peak as a percentage of GDP this year, so it wasn't all bad news.”
However, the improvement in the deficit reduction over the last year allowed the chancellor to make a number of policy announcements and below FE Trustnet rounds up the reactions of market commentators on those most relevant for investors and savers.
Brexit
As was to be expected, the first note in the speech tackled Brexit, with the chancellor announcing a £3bn provision – on top of the £700m already put to one side – in anticipation of difficult negotiations.
“Today I am setting aside over the next two years another £3bn and I stand ready to allocate further sums if and when needed. No one should doubt our resolve,” he said.
Shilen Shah, bond strategist at Investec Wealth & Investment, noted that Brexit negotiations remain the key area of uncertainty for both GDP growth and the Budget deficit mentioned above.
However, the main issue surrounds the goods and service sectors and whether a comprehensive deal can be achieved.
“The key risk for the economy however remains whether a service sector agreement can be reached, given that it makes up more than 80 per cent of the economy and its one area of trade where the UK has a surplus with the EU – in contrast to the manufacturing sector,” he said.
Stamp duty and housing
Turning to the biggest surprise of the Budget – the scrapping of stamp duty for first-time buyers on properties under £300,000 – which has been met by a muted reaction.
“To ensure that this relief also helps first time buyers in very high price areas like London, it will also be available on the first £300,000 of the purchase price of properties up to £500,000,” the chancellor added.
Savings for first-time buyers under new policy
Source: Halifax First Time Buyer Review
Tom Selby, senior analyst at AJ Bell, said the relief for first-time buyers was a welcome boost to for people, but would have more of an impact in the south of England.
“The saving based on the average house price for first time buyers in the UK will be £1,654. However, this more than doubles in the south-east to £3,839 and in London it would be £5,000,” he said.
“Whereas, in the north, the average house price for first-time buyers barely exceeded the previous stamp duty threshold so the benefit for many people will be almost non-existent.”
However, Killik & Co’s Tim Bennett said the steps do not go far enough, and do little to help those people saving for a deposit.
“This is treating the symptom, not the cause. The real challenge is to help buyers save that initial deposit – and we haven’t seen anything so far in this Budget that will directly support young people on overcoming that much bigger financial challenge.”
As well as the stamp duty changes, the chancellor announced he would set aside “the financial incentives necessary to deliver 300,000 net additional homes a year on average by the mid-2020s” and has begun a review to look at the gap between planning permissions and housing starts.
Personal allowance
There was a boost for savers, with the personal allowance limit increased to £11,850 and the higher rate threshold to £46,350.
Hammond said: “The typical basic rate tax payer will be £1,075 a year better off compared to 2010 and a full-time worker on the National Living Wage will take home more than £3,800 extra.”
Maike Currie, investment director for personal investing at Fidelity International said squeezed UK households will welcome the hike.
“This is much needed given that cash-strapped consumers continue to struggle with high inflation and paltry wage growth,” she said.
Inflation expectations fan chart
Source: Bank of England
Bernadette Lewis, financial planning manager at Scottish Widows, added that with the increased personal allowance coupled with the maximum £1,000 personal savings allowance, the reduced £2,000 dividend allowance and 0 per cent rate for the first £5,000 in savings, means some individuals could receive up to £19,850 in income from savings tax-free.
“We welcome any changes that help people save more, and make it easier for people to do so,” she said.
“Our research shows that just 56 per cent of people are saving adequately for their retirement and 18 per cent are not saving anything for retirement. Increasing the personal allowance is a welcome start to helping to fill the savings gap to help future generations.”
Pensions
Not included in the Budget – to the relief of many commentators – was pensions, with none of the rumoured announcements on pensions tax relief or annual allowances coming to fruition.
Nigel Green, founder and chief executive of deVere Group, noted: “Philip Hammond has done something extraordinarily positive in this Budget – he’s not tinkered with pensions to raise cash.
“This is particularly remarkable because he needs an extra £8bn for the expenditure to which the government has already committed – and he has resisted the temptation to raid pensions.”
Jon Greer, head of retirement policy at Old Mutual Wealth, added that the dull and boring Budget on pensions was highly unusual after so many years of change.
However, while pension savers can breathe easy, for now, he said that changes to pensions tax relief will continue to loom large for years to come as long as government borrowing remains at an all-time high.
Enterprise Investment Scheme (EIS)
Another key scheme for investors and savers was the doubling of the EIS investment limits for knowledge intensive companies.
The EIS is one of four venture capital schemes offering tax reliefs to individual investors who buy new shares in unlisted companies focused on innovation.
He also announced that he would clamp down on those using the scheme as a shelter for low-risk capital preservation.
Hugi Clarke, director at Foresight Group, said: “The chancellor’s decision to remove low-risk EIS is designed to refocus these investments away from ‘low risk’ structures and towards innovative companies with the opportunity for growth.
“EIS has been acknowledged as a key component in supporting these businesses as evidenced by the doubling of investment limits for technology based ‘knowledge intensive’ companies.”
Importantly the changes leave the tax advantages of this vehicle in place meaning it “remains attractive” to investors able to take advantage of the tax benefits and accept the associated risks.
“VCT [venture capital trusts] and EIS remain a unique investment opportunity while just as importantly continuing to support UK business,” he added.
“The attraction of these products has meant that between April and October VCT inflows were up 100 per cent against the same period last year while total fundraising is expected to exceed £800m this year, the sector’s highest ever.”
Electric and driverless vehicles
Earlier in the week, Hammond set out plans to have fully driverless cars without a safety attendant in use by 2021 and doubled down on the sector within the Budget.
“There is perhaps no technology as symbolic of the revolution gathering pace around us as driverless vehicles,” he said on Wednesday.
“Our future vehicles will be driverless, but they’ll be electric first and that’s a change that needs to come as soon as possible. So we’ll establish a new £400m charging infrastructure fund, invest an extra £100m in Plug-In-Car Grant, and £40m in charging R&D.”
Neil Brown, co-manager, Liontrust Sustainable Investment team, said: “We welcome the chancellor’s support for our autos industry today, a sector where we have a long and proud heritage in the UK and need to invest for future growth.”
He added that improving auto safety was one of the key themes for the team which invests in companies benefiting from moves towards electrification and better vehicle safety.
“Most of these new components require a significant increase in the semi-conductor material in a vehicle and companies such as Infineon Technologies and Valeo are leading players in this market,” said Brown.
“We are excited by a vision of the future in which safer cars with electrified drive chains, supported by a nationwide charging infrastructure powered by renewables, can get us where we need to go safer, faster and more comfortably.”