1 March 2024: Hunt is considering “non-dom” status

In his Spring Budget that will be presented to Parliament next week, The Chancellor of the Exchequer is reportedly considering ending “non-dom” status for tax purposes. This allows people “non-domiciled” in the UK to only pay tax on earnings derived within the country.

This will come as a blow to Akshata Murty, the wife of the Prime Minister, who is considered the country’s most famous “non-dom”.

It has long been a cornerstone of Labour Party policy to end this tax loophole, and Jeremy Hunt will have “stolen their thunder” by choosing to close it before the election.

It will provide a significant boost to Hunt’s plan to cut taxes and produce a significant windfall. It was estimated that at the end of 2022, 68,000 people were claiming this status, and ending it would reap an added £3.8 billion for the Treasury.

Although this policy may discourage wealthy investors from coming to the UK, which is angering ministers, it would likely be seen by voters as a significant signpost towards the Government’s commitment to levelling up which was a hot topic at the 2019 election and was considered the cornerstone of Boris Johnson’s eighty seat majority.

In an interview yesterday, former Prime Minister John Major spoke of his opinion that the Chancellor should increase defence spending rather than cutting taxes and negotiate re-entry into the European single market, as more than a “rule-taker”.

These ideas are considered outmoded in a post-Brexit UK, as the country now has free trade agreements with several nations from outside the EU and is considering several more. If Donald Trump were re-elected, it is considered likely that a trade agreement would be hastened since he is more pro-UK than President Biden, who has fostered closer ties with Brussels.

The budget will be the most important economic event of the year so far. It will only be overshadowed by the MPC announcing its first interest rate cut.

Once the Budget has been “devoured” by the City, the press is likely to have a far clearer picture of when the Election will take place.

Rishi Sunak has continually “talked up” his “plan”, which he believes has “taken root” since the start of the year and has begun to flourish. While inflation is still above the MPC’s target, the rate of wage increases is dropping while unemployment has fallen over the past year, reaching 3.8%.

It would be considered a miracle if Sunak were able to pull off an election victory, but Andrew Bailey and Jeremy Hunt may provide him with a “fighting chance” in the coming weeks and months.

The pound dipped to a low of 1.2623 as the dollar’s recovery began to gather pace. It closed at 1.2623 and looks set to end the week lower.

Next week, the market will begin to consider the chances of a rate cut at the FOMC’s next meeting, which will take place on March 20th. One of the most crucial factors in the Fed’s decision-making will be the February employment report, which will be published next Friday.

Before that, there will be the usual reports published for private sector jobs, job cuts, and openings. Try as it may, the market has been unable for years, ever since employment became the most significant driver of the economy, taking over from trade, to find a reliable way of predicting the headline new jobs figure from the data that is reported before the “main event”.

To many market practitioners, the number itself has become more important than its economic ramifications.

Since the Fed announced the end of its cycle of rate hikes, traders and investors have tried to second-guess the FOMC in deciding when the first cut in rates would occur.

Likely, the Fed is now coming close to the end of what it would consider its “grace period” during which rate hikes are left to slow demand and cut inflation.

It was never genuinely considered an option for rates to be cut before the end of last year, and there was only a slim chance of a cut in the first quarter.

There has been more than enough advance guidance provided to the market by Jerome Powell and a majority of his colleagues to lead the market to believe there will be no cut until April at the earliest.

However, that will not end speculation that there may have been a significant fall in job creation in February and that it may lead to a cut in the Fed Funds rate.

There is also a slew of data relating to economic output due for release early next week, and the market is expecting the data to remain positive as the economy continues to expand.

The PCE inflation data, published yesterday, failed to excite traders as it showed that inflation is moving in the right direction, but its pace remains slow.

The dollar index is also moving in the right direction, albeit also at a slow pace. Yesterday, the index reached 104.20 and closed at 104.12.

Christine Lagarde is still “fiddling while Rome burns!”

As the economy is crying out for a cut in interest rates, she is considering plans for systemic changes to the European Union’s financial market, which would lead to greater consolidation.

Lagarde would be well-advised to work with the European Commission in the re-establishing of the fiscal rules that used to guide individual nations’ budget deficits and debt-to-GDP ratios. They will be “rebooted” this year and unless the ECB lends its support a recession is an almost certain outcome.

Inflation data was published yesterday for the Eurozone as a whole, as well as some individual nations.

The Growth and Stability Pact is being replaced by the Excessive Deficit Procedure. This is sufficiently vague in its wording to allow countries to continue with Budget deficits well over 3% while debt-to-GDP ratios of 100% would be considered low, even though the Growth and Stability Pact set the limit at 60%.

The rate of price increases fell in Germany, France, and Spain. In Germany and Spain, inflation is now below 3% which should provide the ECB with some encouragement.

Service costs are still the only “sticky” area where demand is still exceeding supply, but that is mainly due to the systemic changes that are taking place in the economy generally.

It would now take a significant increase in wages for the ECB to avoid a rate cut in April or May.

The European Parliament has been “relegated” to the role of overseeing the many departments that “come under its umbrella” without interfering in their decision-making.

The ECB is such a “department” but yesterday, even MEPs appeared to have lost patience with comments from several during a debate on the economy that the Central Bank is in danger of losing credibility in failing to heed the fall in activity that has driven some countries into recession.

The euro has now retraced 50% of the gains it made early last month. Yesterday it fell to a low of 1.0795 and closed at 1.0808.

Have a great day!