Markets respond to Budget as gambling stocks surge and AIM lives to fight another day

“There was a considerable amount of relief on the markets after Rachel Reeves’ Budget wasn’t as punishing as expected,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“However, there is a real risk the party candles quickly fizzle out as businesses add up the extra costs from changes to employer National Insurance, employment rights and a higher minimum wage. These issues threaten to dampen corporate profit margins unless companies simply pass on these extra costs to the end customer.

“10-year gilt yields moved higher as the Chancellor outlined plans to ‘invest, invest, invest’ and sterling strengthened against the dollar. UK economic growth forecasts were lacklustre to put it mildly, but not disastrous.

“Investors flocked to economically sensitive sectors including banking and housebuilding in response to the planned end to a freeze on income tax and National Insurance thresholds in 2028. Fewer people being dragged into higher tax bands as their wages rise has lifted investors’ hopes around consumer spending and ability to get onto the housing ladder. The FTSE 250 index moved higher as the Budget unfolded.

“Wetherspoons’ shares jumped the moment the Chancellor said alcohol duty would be cut on draught drinks as a cheaper pint could get more people into the pub. Publicans rarely have anything good to celebrate on Budget Day and, although Wetherspoons’ shares came down again during the afternoon, they will be toasting the latest news well into the night.

“The FTSE AIM 100 is not an index that investors tend to follow closely but it had its moment in the sun after the expected blow to the junior market around IHT relief was softer than expected. Investors had feared that the Chancellor would scrap IHT relief on certain types of AIM shares, but in the end the rate of relief was halved. Disaster was avoided for the junior market as a full abolishment of the tax relief could have triggered a widespread sell-off. The AIM index jumped 4%.

“A lot of people were predicting the worst for AIM, saying that without IHT relief it could have faded away. It still requires investors to have a high level of risk to want to own many shares on this market, but AIM lives to fight another day.

“Chatter about higher taxes on the gambling sector didn’t appear in the Budget, leading to a relief rally in Entain and other bookies on the stock market. The prospect of further HS2-related tunnelling work saw investors dig into Costain and Balfour Beatty shares. The windfall tax on the UK oil and gas industry was increased but shares in North Sea operator Serica Energy surged on relief that some allowances will be retained.”

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