No wonder Philip Hammond has been so quiet since he replaced George Osborne as Chancellor of the Exchequer in the summer. The Autumn Statement confirmed that he and the forecasters at the supposedly independent Office for Budget responsibility have no more idea of what will happen over the next couple of years than the rest of us.
Hammond’s admission that he cannot balance the Budget is a welcome piece of realism
I suspect that the difference between the two Chancellors is that Osborne had little grasp of economics but acted as if he had, while Hammond has a much greater grasp but realises his limitations. That should be a big improvement as we head towards Brexit.
The OBR reckons Brexit has blown a £58 billion hole in the public finances, yet Hammond feels able to freeze fuel duty, raise income tax thresholds and find £23 billion for infrastructure investment. I haven’t bothered to work out how this supposedly adds up to the government borrowing £122 billion extra over the next five years. The figures are purely notional.
Hammond’s admission that he cannot balance the Budget in the foreseeable future is a welcome piece of realism after Osborne’s posturing over writing the elimination of the deficit by 2020 into the statute book. We are at least seven years adrift of Osborne’s original target of 2015.
GDP growth has now been confirmed as 0.5% in the third quarter and Hammond is confident that the UK economy will outpace those of France and Italy, which is probably correct. The big question is whether we can strike a Brexit deal that does not involve us pouring an extra share into European Union coffers.
My investment stance remains much the same. Equities, especially shares in companies with international exposure, remain attractive. Bonds are even less appetising than they were, since the extra borrowing will make it harder for the UK government to borrow at low interest rates, so gilt prices will fall. Gold arguably remains a hedge in uncertain economic times, though I do not hold any myself and would caution against holding more than 5% of your portfolio.
Lovely for Lloyds
Far more important than the autumn statement as far as stock pickers are concerned was the resumption of sales from the government holding in Lloyds Bank (LLOY). Hammond has sensibly scrapped George Osborne’s daft idea of a retail offering and reverted to letting 1% go at a time.
Lloyds’ share price is still depressed by the self-defeating idea of a discounted retail issue, which means the latest 1% batch has been sold at less than break-even point, which is bad news for taxpayers but it isn’t Osborne’s problem any more.
It is good news, though, for shareholders. The sooner the overhang is removed the better. I hold Lloyds shares but if I didn’t I would want to buy while the chance lasts.
Profits Warning for Countrywide
The profit warning from estate agent Countrywide (CWD) came as a nasty jolt, considering how well other companies connected with housing have fared so far this year.
Despite claiming to have made “good strategic progress in a challenging market” Countrywide has found the accent is on challenging rather than progress. House sales are down, especially in London, and Countrywide says – and this will amaze anyone trying to rent in London – that more properties are becoming available for renting than there are tenants, creating an imbalance that is pushing rents lower.
I really thought you couldn’t go wrong in the housing market at the moment, especially in the capital, but Countrywide has managed to do much worse than last year, fulfilling a warning it issued along with the interims. Next year could be even worse.
The shares slumped 13% on the day of the warning to stand lower than at any time in the past five years. Don’t take that as a sign they are cheap. Stay well clear.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
