Given the uncertainty surrounding Brexit, Philip Hammond is not expected to announce any significant tax changes when he presents the Spring Statement, which will be Wednesday’s main macro focus.
There could be a bit of a political hand grenade, however, as the statement comes the day after MPs vote on Theresa May’s Brexit plan and two weeks before the UK is due to leave the European Union, with the former seemingly set for a crushing defeat as of Tuesday afternoon.
Hammond has vowed to increase public spending if MPs back May’s Brexit plan. In October when he presented the Budget, he said he had £15.4bn in the coffers but warned that he would need that money to deal with the event of a no-deal Brexit.
The chancellor will have more room for manoeuvre after official figures showed January had the largest monthly surplus in public finances since records began in 1993.
But he is unlikely to raise public spending until there is more certainty on Brexit. Instead, Hammond will probably concentrate on updating the UK on the health of the economy along with the latest forecasts from the Office for Budget Responsibility.
“As the Chancellor has reiterated on a number of occasions, the Spring Statement is not intended to be a major fiscal event, like Autumn Statements of the past. It is instead an opportunity to provide the Government’s public response to economic forecasts from the OBR and a launchpad for early tax consultations, to allow for an 18 month period, before inclusion in the Finance Bill", said Chris Sanger, EY’s head of tax policy.
“However, during the last Budget speech in October he did reserve the right to upgrade this Spring Statement into a Spring Budget, but with Brexit negotiations ongoing it unlikely the Chancellor will choose to do this."
Supermarket sector eyed amid Morrison’s finals
On the corporate front, full-year results are due from Wm Morrison Supermarkets PLC (LON:MRW), with the last time investors heard from Morrison’s CEO David Potts back in January when the food retailer reported a 3.6% rise in like-for-like sales over Christmas but warned of a “change in consumer behaviour”.
Competition concerns are not going away either, particularly as the merger of the second and third biggest players, J Sainsbury PLC (LON:SBRY) and Wal-Mart Inc (NYSE:WMT) owned Asda, looks to have been kyboshed by UK authorities, and investors will want to hear more about the supermarket landscape.
The rise of German discounters Aldi and Lidl has forced Morrisons and its Big Four peers to slash their prices and the grocer said in that January update it was “more competitive” over Christmas, so it will be interesting to see what effect that has had on profits.
As ever, recent sales numbers in the core retail business, which excludes the wholesale division, will be important, too.
Outflow levels eyed from Standard Life Aberdeen
Blue-chip investment manager Standard Life Aberdeen PLC (LON:SLA) has had a busy first year since merging in 2017, losing a big mandate from Lloyds Banking Group PLC (LON:LLOY) but sealing the £3bn sale of its life assurance business to Phoenix Group Holdings PLC (LON:PHNX).
Recent updates from other asset managers have shown a slow down in flows in the first quarter of 2018 in the face of volatile markets.
Analysts at UBS expect Standard Life Aberdeen to report fund outflows of £22.8bn from its Growth business in the second-half, together with another £5.5bn of outflows from its Mature insurance business.
The Swiss bank expects the FTSE 100-listed firm to report second-half revenue of £1.12bn, down 17% on the first-half number, albeit largely due to the sale of the insurance business which completed in the middle of the period.
UBS sees the group’s gross operating profit coming in at £300mln, with after-tax adjusted profit to be £310mln, down 19% from the first-half.
The UBS analysts said with a new chairman, Douglas Flint having started on 1 January 2019, investors will also likely be focused on any commentary regarding Standard Life Aberdeen’s co-CEO structure or any guidance on the potential liquidation of its 30% stake in HDFC Life.
Demerger progress eyed at Prudential
UBS expects the pensions and insurance giant to post operating profit of £4.6bn for 2018, in line with consensus forecasts but flat compared to a year earlier.
Asia will continue to be the key driver with operating profit estimated to reach £2.0bn, up from £1.9bn the previous year.
UBS predicts a full year dividend of 49.35p, which is 2% below market forecasts but up 5% year-on-year. The Pru’s solvency ratio – a measure of capital strength for insurers – is expected to rise 11 points to 212%.
The Swiss bank’s analysts said: “We expect the key focus areas to be: 1) Asia new business sales growth, where Hong Kong should evidence strong y-o-y growth but the growth trends excluding Hong Kong will also be key; 2) the US capital position (RBC ratio) and state capital generation for FY18; 3) UK: update on UK demerger; 4) ongoing trends in fund flows from M&G, PruFund and Eastspring and 5) some details regarding recent Board composition changes.”
Significant announcements expected for Wednesday March 13:
UK Spring Statement
Finals: Wm Morrison Supermarkets PLC (LON:MRW), Prudential PLC (LON:PRU), Standard Life Aberdeen PLC (LON:SLA), Lookers PLC (LON:LOOK), Dignity PLC (LON:DTY), Balfour Beatty plc (LON:BBY), Hikma Pharmaceuticals PLC (LON:HIK), Gen Diamonds Ltd (LON:GEMD), Lookers PLC (LON:LOOK), Marshall Motor Holdings PLC (LON:MMH), Manx Telecom PLC (LON:MANX), Advanced Medical Solutions PLC (LON:AMS), Avast PLC (LON:AVST), Burford Capital PLC (LON:BUR), Empresaria Group plc (LON:EMR), ECSC Group PLC (LON:ECSC), Gem Diamonds Ltd (LON:GEMD), StatPro Group PLC (LON:SOG), SigmaRoc PLC (LON:SRC), SafeCharge International Group Ltd (LON:SCH), Kenmare Resources PLC (LON:KME)
Economic data: US PPI