Investors are hoping the 'deal dividend', promised by Chancellor Philip Hammond in today's Spring Statement should Britain leave the EU with a deal, will lead to small- and mid-cap stocks surging, and also further cuts in corporation tax.
Brexit uncertainty and the potentially damaging prospects of a no-deal Brexit dominated the Spring Statement, with the Chancellor warning on "significant disruption to the economy over the short and medium term, and a less prosperous economy over the long term".
Following the result of last night's parliamentary vote, which saw Prime Minister Theresa May's withdrawal agreement rejected by the House of Commons for a second time, Hammond said he was disappointed that there is still little clarity in regard to negotiations.
However, he said he was confident that the UK would not crash out of the European Union (EU) without a deal - a prospect that hinges on tonight's vote on whether to take a no-deal divorce off the table.
That said, the Chancellor explained the economy remains resilient and is forecast by the OBR (Office for Budget Responsibility) to continue to grow every year over the next five, having already grown by nine consecutive years and at a faster pace than France, Italy and Japan since 2010.
The OBR also forecast borrowing and debt will fall each year over the next half-decade, which Hammond said he will utilise by rolling out further investments in infrastructure, technology, housing, skills and real growth in order to make the most of post-Brexit opportunities.
Richard Carter, head of fixed interest research at Quilter Cheviot, said the statement was always going to be overshadowed by Brexit uncertainty, given the UK's outlook "hinges largely on the outcome of [tonight's] vote". However, he said it also served as a reminder that it is not all bad news for the UK economy.
"The government's finances are in much better shape after years of belt-tightening with the deficit now down to 1.3% GDP in 2019/20; this should mean there is more money available for key public services such as the police and the NHS," he explained. "The Chancellor will hope that these funds don't end up being needed instead to mitigate the impact of no-deal."
Hammond introduced his concept of a 'deal dividend', which he described as the UK's increase in wealth in the event of an orderly exit from the EU, given that business confidence and consumer spending would increase, while Brexit-related unemployment would be minimised.
"I am looking forward to seeing what the 'deal dividend' means for tax," said Nimesh Shah, partner at accounting practice Blick Rothenberg.
"I would like to see the 'deal dividend' used for a further reduction in corporation tax to 15%, especially in the event of a no-deal Brexit."
Philip Smeaton, chief investment officer of Sanlam UK, said positive news on tax receipts should "in theory give the Chancellor greater wriggle room, although he was at pains to point out that the purse strings won't be loosened until there is greater clarity around the UK's future relationship with the EU."
He said: "More than anything, today's statement had a very clear motive; to dangle the prospect of a 'deal dividend' in front of those MPs who may still change their mind and vote for Theresa May's withdrawal agreement if it comes back for a third time."
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