Edge #27 - What's the Impact of the Chancellor's Budget?

What I’m reading

I’ve had Wealth of Nations on my to-read list for a while and finally managed to get around to it. It’s a very old book, written in the 18th century by Adam Smith. I say written, but the story goes, that Adam Smith had poor handwriting so he hired a scribe to write his thoughts while he dictated. As a result, the book has a unique tone.

It’s not particularly heavy as economics books goes, but Smith has a way of explaining things from first principles.

Resource of the Week

This week I’m giving you my very own resource! Many of you have been very kind with the feedback on my POV TikTok breakdown videos, so I’ve scanned and uploaded my handwritten notes to Google Drive here, which will always be free for you to access.

Quote

“When dealing with people, let us remember we are not dealing with creatures of logic. We are dealing with creatures of emotion, creatures bristling with prejudices and motivated by pride and vanity.”

Dale Carnegie

Thoughts

The Chancellor announced what’s dubbed as a ‘mini-budget’ this week. The way the market reacted to it is anything but mini. The pound has tumbled to historic lows on fears that the government will borrow/print more money.

It’s very uncertain times but it’s clear we are almost certain to see further interest rate rises to curb inflation from spiralling out of control.

In terms of property prices, there are a lot of forces at play. On one hand, the rising interest rates will dampen things due to higher monthly payments for homebuyers along with the cost of living pressures. But on the other, the low value of the pound compared to the dollar will attract significant foreign interest on properties. I mentioned a week ago in a TikTok that on a £500,000 property an investor paying in USD or a USD pegged currency like the HKD is essentially saving about $120,000 compared to just over a year ago. Since the budget, the pound has tumbled further giving foreigners an even better deal.

We’ve also got the doubling of the zero stamp duty band to £250,000 that was announced this week and effective immediately which will increase demand. It is a concerning situation because I see this budget as a huge gamble. The downsides are pretty much guaranteed: wealth gaps further widening and our national debt (already one of the highest in all developed countries) increasing but I’m not sure if this will sufficiently stimulate the economy.

Personally, my opinion shadows that of the market, I think holding pounds or any currency is a huge risk. Of course, things are changing really fast I hope things stabilise in 2023.

What do you think? Are you investing or holding back? Let me know, would be interested to hear your thoughts.

Have a good week!

Hans