UK government raises growth forecast to 3%

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The British government has upgraded its GDP growth forecast for 2014 to 3% YoY, chancellor George Osborne confirmed in its last autumn statement ahead of the general election in May 2015.

Speaking in in London, Osborne highlighted that the UK has shown the strongest GDP growth of all G7 countries, he raised the 2015 forecast from 2.3% to 2.4%.

With regard to the fiscal forecast, he announced the intention to reduce public sector net borrowing by half this year to 5% with a further reduction to 4% for 2015-2016. Osborne stated that he aims to reach a small surplus of 0.2% in 2018-2019.

Salman Ahmed, Global Fixed Income strategist at Lombard Odier Investment Managers, said: “Holders of UK gilts – remember it’s a global marketplace and that while the UK market stall is creaking under vast debts, the price of UK government bonds is set by what is happening elsewhere in the world marketplace:  low inflation and interest rates unlikely to rise any time soon. So as long as gilt investors keep looking outside the stall, things won’t look so bad!”

The chancellor also introduced a reform of the stamp duty tax on properties, with 0% to be paid for the first £125,000 then 2% on the portion up to £250,000, 5% up to £925,000, then 10% up to £1.5m; 12% on anything above that, saving £4,500 on average priced home

Guy Ellison, head of UK equities at Investec Wealth & Investment: “The introduction of marginal rates of stamp duty changes will benefit the majority, though those at the top-end of the market will see a higher tax burden. From a market perspective this could weigh on the London-centric house builders and estate agents, for example Berkeley and Foxtons, whilst potentially favouring the more regional developers.

The chancellor also pledged to take measures in order to prevent tax evasion by multinationals. “New tax proposals for multinationals deemed to be avoiding taxation on profits generated in the UK and the introduction of charges for non-domiciled individuals both reflect the Chancellor taking a tougher stance on those not deemed to be paying a ‘fair share’ of tax”, Ellison commented.

Christopher Mahon, Investment Manager and Director of Asset Allocation Research at Baring Asset Management added: “The welcome ambition to allow Northern Ireland to lower the level of corporation tax in the province to match those charged in the Republic carries the obvious challenge that existing UK corporate tax revenues are rerouted via NI, cutting the Treasuries overall take.”

“The Autumn Statement has been put together with an explicitly political agenda.  With the election looming, this is about helping the coalition win in May.  There is little here that will change the broad direction of the UK economy, but there are lots of eye catching smaller initiatives” Mahon argued.

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