What the stockmarket thought of Hammond's budget

Theresa May has promised to trigger Article 50 and the UK's exit from the European Union next spring. To limit damage to the economy, chancellor Philip Hammond used his first budget to flag a huge infrastructure spending spree. But restricted by a promise to balance the books, the market is unimpressed.

When Hammond stood up to a packed house, the FTSE 100 traded at 6,833, already down from an early morning peak of 6,880. By the time he'd finished, the blue chip index had lost 11 points. However, given time to reflect, traders quickly sold the FTSE down to a day low of 6,780.

Clearly, economic forecasts are pretty grim. The Office for Budget Responsibility (OBR) has revised down estimates for GDP growth in 2017 by 0.8 percentage points to 1.4%. Expect a recovery in 2018 to 1.7%, then 2.1% in both 2019 and 2020, and 2% in 2021.

We're told there's "a higher than usual degree of uncertainty in these forecasts", but we expected that. According to the OBR, the EU referendum has already reduced potential output by 2.4 percentage points. It'll be worse if Brexit turns bad, or the global economy experiences a widely-anticipated hiccup.

By 2021-22, the UK will have spent £170 billion on housing, infrastructure, and R&D in five yearsTo mitigate potential downside, Hammond has promised to tackle an embarrassing productivity gap, worse even than Italy. He'll do this by setting aside £23 billion for a National Productivity Investment Fund (NPIF).

That money will bankroll the biggest affordable house building programme since the 1970s, resurfacing 80% of the strategic road network, investing in our creaking rail network, and prioritising science and innovation spending.

By the time it's all gone in the 2021-22 fiscal year, the government will have spent £170 billion on housing, economic infrastructure, and research and development in five years. It also increases infrastructure spending from 0.8% of GDP to between 1% and 1.2%.

Winners and losers

That's great news for motorway barriers firm Hill & Smith, and struggling tool rentals companies Speedy Hire and HSS Hire.

However, there's no pleasing Colin Morton, portfolio manager at Franklin UK Equity Income Fund. He called the budget a "non-event", with the money talked about "not enough to move the dial".

"With no radical announcements, there was little said on measures that will help alleviate the pressure on UK consumers next year. The chancellor tinkered at the edges, rather than introducing anything of real substance and the overall picture for 2017 remains a difficult one for the UK."

There was much excitement mid-speech as Hammond flagged plans for the housebuilding sector. Ahead of a Housing White Paper due shortly, we heard there'll be a new Housing Infrastructure Fund of £2.3 billion by 2020-21, funded by the NPIF.

We're promised 100,000 new homes out of this. Another £1.4 billion of NPIF money will deliver an additional 40,000 housing starts, and £1.7 billion will help speed up house building on public sector land.

Housebuilders Persimmon, Taylor Wimpey and Barratt Developments spiked at five minutes to 1pm, but now trade deep in the red. Clearly, traders feel there's nothing there to help the bottom line.

Retailers got smashed, too, as Hammond announced that the National Living Wage (NLW) will increase from £7.20 an hour to £7.50 from April 2017. That's great news for staff, but means higher costs for players like Sports Direct, Next and Marks & Spencer.

There'll be no tears spilled for estate agents, either. Confirmation of a ban on letting agents' fees to tenants, leaked to the press overnight, will improve competition in the private rental market, but that's bad news for firms like Foxtons, down 15%, LSL Property, down 4%, and Countrywide, down 5%.

"Even if estate agents try to find some way around the proposed ban, through other incidental charges or higher rents, it is unlikely to offset the loss of fees, meaning a further squeeze on margins and dampening the short to medium term outlook for the sector," warns our head of investment, Rebecca O'Keeffe.

Elsewhere, an absence of bad news rather than any major new initiative kept oil majors Royal Dutch Shell and BP in the blue.

For the latest news and expert analysis on the chancellor's maiden set-piece budget speech and its repercussions, make sure to check out Interactive Investor's Autumn Statement hub.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.