In the mini-UK budget yesterday, Chancellor of the Exchequer Rishi Sunak made announcements that will provide some relief for the household budget. These include an increase in the national insurance threshold. And a cut in petrol and diesel duty for the next year. This is an encouraging sign for consumption. But I did not see my stock investments jump yesterday. In fact the FTSE 100 index was relatively flat.
UK budget provides partial relief from inflation
There is a good reason for this. Consumption spending was already in danger of being compromised because of rising inflation. For February, the UK saw an inflation rate of 6.2% compared to the same month last year. And there is more to come. The Russia and Ukraine war can have a big impact on the global commodity market. Based on this, the Office for Budget Responsibility (OBR) now expects inflation to rise to a high of 8.7% in the final quarter of this year.
The translates into only limited relief to consumers from the budget. This is evident from the fact that the OBR also forecasts that real spendable incomes will still fall by 2.2% in the 2022-2023 fiscal year despite the measures. This is worth underlining, because it is the biggest decline in a single year in its documented history! So it is no surprise that the markets did not jump. In fact, this means that I can well brace for some impact on my stock holdings. Especially the ones that are most directly related to consumption spending.
My investments that could be affected
Among my FTSE 100 holdings, I think stocks like JD Sports Fashion, Ocado, and Royal Mail are in the direct line of fire, metaphorically speaking. Of these, JD Sports Fashion is likely to be impacted because it is a retailer selling athleisure products, which are not always necessities.
On the other hand, e-grocer Ocado delivers necessities from food items to hygiene products. But it also sells premium household products. Their demand is likely to be sensitive to a decline in income. And Royal Mail, whose parcel delivery revenues are now bigger than those from letters, is also likely to be affected to the extent that discretionary spending is impacted.
FTSE 100 growth stocks to consider
There are others that look quite promising to me, however. As an example, I wrote about the pharmaceuticals biggie AstraZeneca yesterday. It has been a good defensive stock for me to hold over the years and even in a slowdown, it should provide stability to my portfolio. The oil stocks of BP and Shell have also been big gainers as oil prices rise. They are expected to skyrocket over the next year as well.
What I’d do now
I think there is a case to increase my holdings in these growing stocks for now. But they are not invulnerable either. If the broader stock markets wobble again, a lot more FTSE 100 stocks would tank, including them. And this could happen because of anything, like another awful inflation report, for instance. While the UK budget has done its bit to stabilise household spending, there is no way of know what could impact us next. As always though, I do believe that this too is a time to stay calm and keep investing.
