It’s UK Budget time of the year again

October 27, 2021

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It’s showtime for Rishi Sunak on Wednesday, as the Chancellor is due to announce the government’s plans for the Autumn Budget – even though it seems most of it can be read in various newspapers already.

The big names are likely to get a bit less attention than usual. Pharma giant and GlaxoSmithKline PLC (LSE:GSK) and industrial software group Aveva Group (LSE:AVV) PLC are both due trading updates, while Harry Potter publisher Bloomsbury Publishing PLC (LSE:BMY) will release its interims.

Budget bonuses?

Financial markets have been very focused on a Bank of England potential interest rate hike, but rather than monetary policy developments, many economists think fiscal changes are currently more important for the UK economy.

Indeed, with the government’s support has been the key tool to carry the economy through the pandemic, Deutsche Bank said the likely steeper fiscal drag would results in a much more material impact.

As Sunak heads into the autumn Budget, he has a lot more fiscal wiggle room than previously expected, with fresh figures showing government borrowing is GBP44bn less than the GBP152bn predicted by the Office for Budget Responsibility in March.

However, while Sunak’s agreed spending commitments on the NHS, schools and defence will absorb much of the wiggle room, meaning he may have to cut elsewhere in order to meet his objective of balancing the budget by the end of the parliament in three years.

Taxes are not something he is likely to cut, but Deutsche’s Sanjay Raja predicts the spending review and revised economic assumptions around pandemic scarring will result in a more rapid fall in borrowing, which “should also allow the Chancellor to meet his prospective fiscal rules by the end of parliament, opening the door to more spending ahead of the next general election”.

So much has already been leaked or announced by the Chancellor and his Cabinet colleagues that some are wondering whether any surprises will be left for Wednesday’s dispatch box speech.

Shingles rebound for GSK?

With all eyes focused on the budget, Glaxo may just get attention from activist investors Elliott Management and Bluebell Capital Partners, who have been pressuring Emma Walmsley to reapply for her job.

The focus will be on Shingrix, the company’s vaccine to protect against shingles, according to UBS.

First-quarter sales of Shingrix were down 50% year-on-year and were flat in the second quarter.

Quarterly sales of GBP414mln are forecast for the drug, which represents a year-on-year recovery of 18%, UBS said.

Overall core earnings from GSK “will likely be muddied by contribution from ‘covid solutions’ (affecting both revenues and costs), which are excluded from FY21 guidance,” the Swiss bank added.

Analysts are expecting third-quarter revenue of GBP8,759bn, core earnings before interest and tax of GBP2,350bn and core earnings per share of 0.29p.