Budget 2020: The Morningstar Reaction

VIDEO: Morningstar's Mike Coop assesses Rishi Sunak's first Budget as Chancellor, including a £30 billion spending package to tackle the impact of coronavirus

Holly Black 11 March, 2020 | 2:31PM
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Holly Black: Welcome to the Morningstar "Market Reaction." I'm Holly Black. With me is Mike Coop from Morningstar Investment Management. Hello.

Mike Coop: Hi, there.

Black: So, we've just had the budget, the first budget by new chancellor Rishi Sunak. And lots going on in there, I think, quite an exciting one. And one of the major focuses was the spread of the coronavirus and what the government is going to do to mitigate the effects of that. What were your first thoughts?

Coop: Yeah, exactly. I think that's exactly spot on, Holly. It's very much a war footing budget. Let's deal with this crisis. Let's also make the point about working in tandem with the Bank of England, with its stimulus and the 0.5% rate cut and very much front end loaded to quickly make sure that the impact of the virus doesn't result in a significant economic recession.

Black: So, it's quite a spendy budget as well. I think a lot of people are wondering where the magic money tree is. Is that a good thing? It seems like the OBR are on board. Growth has been revised up. But could we pay for that spending in future years?

Coop: Well, it's interesting. In the run up to the budget, it was perceived to have a little headroom given all the spending commitments previously made, and then the impact on government revenues from the economy sagging. So, it does look as if we're in for a significant increase in borrowing to fund all this because there aren't really any big tax increases that have been announced. And the deficit, the amount the government borrows each year, is clearly going to go up quite a lot. The thing about that at the moment is, in the world we're in, it's pretty cheap for the government to borrow money because interest rates are so incredibly low. And in a world comparison, the extra amount the UK Government is putting its hand at for is relatively small. So, in some respects, it's an opportune time to borrow more, because the cost of that borrowing is pretty low.

Black: Okay. So, there wasn't an awful lot in there for the individual, I don't think. There was a little bit about changes to the pension taper. And the junior ISA allowance is going up quite generously. Currently around £4,300, that's going to be £9,000 that people can save for their children now. But why do you think not so much on the individual?

Coop: I think it's a good question. If you roll the clock back to late last year, it looks like this budget was going to be a real big bang, long-term strategic changes. It will tackle tough issues like the tax system fair, and to look more comprehensively at the greening of the economy. I think what's happened really instead is that the focus is just keeping growth going. Let's not try and make this controversial changes now. There's a spending review that scheduled in for the next few months, and a subsequent budget, where it's more likely some of these tougher long-term measures might be introduced. After all, we are in the first year of a new administration. And that typically is where you get those tougher long-term decisions being made that are painful, so the electorate forgets all that by the time the next election comes around. So, I think I would spill expect to see something like that happen, but perhaps later in the year. And this is all about reassuring the public that yes, there'll be enough support so that the virus impact is contained.

Black: So, this was Rishi Sunak's first budget as chancellor. It came in at about 62 minutes. What were your overall thoughts on how he did?

Coop: I think it will be perceived as a very impressive political performance with a very positive messaging for someone who's come in, who's not perceived to have any baggage to have to contain with, with the obvious political point scoring that we saw. So, very well delivered in a more upbeat as opposed to the last few years where it's been a very downbeat message of caution ahead of Brexit. Interestingly enough, that Brexit concern and putting money away for a rainy day has completely changed. And so, we're seeing a real change in the tenor of the messaging that spending is okay, that borrowing more is okay and that we don't need to concern ourselves too much, because perhaps this is the rainy day.

Black: Well, thank you so much for your time.

Coop: My pleasure. Thank you, Holly.

Black: And thanks for joining us.

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Holly Black  is Senior Editor, Morningstar.co.uk


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