U.K.’s Whatever It Takes Isn’t Enough to Buoy British Stocks

(Bloomberg) -- U.K. finance minister Rishi Sunak pledged a 30 billion pound ($39 billion) stimulus package and said he will do whatever it takes to support the economy as the country grapples with the impact of the coronavirus. The stock market barely reacted.

The U.K.’s benchmark FTSE 100 Index was broadly flat at the beginning of Sunak’s speech and closed 1.4% lower, falling with U.S. and European gauges. U.K. stocks had gained as much as 2.2% in early trading after the Bank of England’s emergency rate cut.

The muted reaction to the budget is because “30 billion pounds here or there is nothing when the world’s biggest economy seems to have been caught napping,” said Chris Beauchamp, chief market analyst at IG in London, referring to the U.S.

Beauchamp described the current situation as a “how bad can this get” stage. “There still isn’t enough good news on infections, or a slow drop in bad news, to justify moving back into equities,” he wrote in an email.

U.K. businesses were already facing challenges even without the headwinds from the virus. They still don’t have certainty on the terms of Britain’s exit from the European Union. And the economy was showing signs of faltering before the chancellor spoke, with a report showing gross domestic product growth had unexpectedly stalled in January.

“With the coronavirus outbreak threatening a cashflow crunch, measures to cut costs and support loans to businesses are on the money,” said Jonathan Geldart, director general of the Institute of Directors. “The necessary focus on coronavirus does not mean other challenges have gone away.”

With Prime Minister Boris Johnson insisting the U.K. will leave the EU’s single market and customs union, businesses automatically face extra paperwork and red tape from Jan 1. 2021, and potentially tariffs if no free-trade agreement is struck.

A lack of major moves for blue chip U.K. stocks may also be because many of the fiscal initiatives announced in the budget target small and medium-sized firms rather than the larger, publicly-listed companies, Russ Mould, investment director at AJ Bell in London, said.

“Investors in U.K. companies, or at least those with exposure to the British economy, will remain concerned about the possible fall-out from the virus, especially as the situation remains fast moving and difficult to quantify,” he wrote in an email.

Still, there were a few notable individual sector and stock moves:

Housebuilders

The budget lacked anything new or any significant details on housing, with the sub-sector broadly paring gains after Sunak finished his speech. The biggest hit was delivered to London-focused homebuilder Berkeley Group Holdings Plc, which turned negative on the announcement of a 2% stamp duty surcharge for overseas buyers starting in April 2021.

Berkeley is the “most vulnerable” to any change in demand as around half the private homes it sells are to overseas buyers, said Howard Seymour, an analyst at Numis Corp. Taylor Wimpey Plc and Barratt Developments Plc, which are also exposed to the London market, fell too.

Infrastructure

Moves for infrastructure companies may have pre-empted the budget speech as Bloomberg reported earlier that Sunak was set to pledge 600 billion pounds ($770 billion) of spending on infrastructure by the middle of 2025.

However, Mould noted that construction and infrastructure plays Kier Group Plc, Hill & Smith Holdings Plc and Balfour Beatty Plc responded favorably to budget measures on infrastructure spending, while BT Group Plc and Spirent Communications Plc rose on plans to invest 5 billion pound in broadband and 510 million pound in 4G mobile networks.

Pubs and Drinks

Plans to freeze duties on spirits, beer, cider and wine drove shares of beverage supplier Naked Wines Plc up as much as 9.2%, the most since June. Pub group operator J.D. Wetherspoon rose as much as 2.5% to a session high after Sunak said the business rate discount for the sector would be 5,000 pounds this year. The stock later erased gains.

Publishers

Shares of U.K. publishing stocks also briefly gained after the Chancellor announced plans to abolish VAT on books, magazines and papers read digitally.

Bloomsbury Publishing Plc’s stock rose to a session high after the announcement, while shares of newspaper publisher Reach Plc, educational publisher Pearson Plc and magazine producer Future Plc also briefly advanced.

Green Business

Sunak allocated 800 million pounds for new technology that can suck pollution out of the air, known as carbon capture and storage. The measures “will be welcome news for certain businesses in the power generation sector,” said Richard Buxton, head of U.K. equities at Merian Global Investors. There was also money for boosting electric vehicle charging infrastructure, 532 million pounds for consumer incentives for ultra-low emission vehicles, and a tax cut on zero emission vehicles.

To contact the reporters on this story: Lisa Pham in London at lpham14@bloomberg.net;Morwenna Coniam in Dublin at mconiam@bloomberg.net;Sam Unsted in London at sunsted@bloomberg.net;Joe Mayes in London at jmayes9@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Jennifer Ryan

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