Global Markets Overview: UK
Updated: Mar 12
By James Parteka, Associate at the York IFS Global Market Telegraph
FTSE 100 remains volatile as Rishi Sunak releases the budget. Deliveroo targets a $10bn valuation in London over other large financial cities.
The FTSE 100 ended 1.5% up on Friday compared to Monday after a volatile week of trading as investors weighed up market news. Over the course of last week, the Chancellor released his budget and the oil price a hit a 14-month high at $70 a barrel , boosting oil majors BP and Royal Dutch Shell in the FTSE 100. Car sales in February were at their lowest since 1959 with only 51,300 cars purchased — a 35.5% decline in sales compared to February 2020 . With UK schools having just reopened, the Government has begun its process of restarting the UK economy — hopefully this time for good — supported by its so far successful vaccine programme. As of last Friday, almost 1 in 3 people in the UK have been vaccinated .
Chancellor Rishi Sunak released his budget last Wednesday with the government now expected to borrow a mind-blowing £234bn in 2021-22 after borrowing £355bn in 2020-21 (a peacetime record). Tax rates are to be frozen for the time being with the tax-free personal allowance and higher rate income tax frozen until 2026. VAT rate for some goods and services is to stay at 5% until September, when it will increase to 12.5% for 6 months . Overall, the budget has extended the Covid-19 support measures until September; however, beyond this, there is little to show what the Government wants for the UK economy in the long run. The most controversial part of the budget is the increase in corporation tax from 19% to 25% in 2023, making Rishi Sunak the first Chancellor to increase corporation tax since 1974 .
National debt is expected to peak in 2023-24 at 97.1% of UK GDP . To reduce the national debt, the government has 4 options: cut spending, increase taxes, grow the economy to increase tax revenues without increasing rates, or let inflation degrade the debt. Whilst it might seem controversial for Rishi Sunak to increase corporation tax, given the current state of the UK economy, I would argue it was not a hard choice for him to make. Prime Minister Boris Johnson has already committed his Government more towards rebalancing regional inequalities in the UK, instead of focussing on overall growth. High inflation degrades real wealth as well as debt, with the Bank of England having to inform the Government whenever inflation exceeds 3%. Rishi Sunak most likely chose higher taxes as a political move with cuts in spending being associated with the ‘austerity’ of the 2010 Conservative Government.
Takeaway delivery company Deliveroo hopes to launch its IPO (Initial Public Offering) in London targeting a valuation of up to $10bn. The IPO would be the most valuable new listing in several years, beating The Hut Group which made the largest UK IPO in 5 years in 2020 . Food delivery companies have been some of the biggest winners from the Covid-19 pandemic with demand for takeaways and online shopping skyrocketing. Before the pandemic, Deliveroo was a small competitor compared to larger food delivery companies. However, much of this changed when Amazon bought a 16% stake in the company. Since Amazon investment in 2019, the value of Deliveroo has doubled with a valuation of over $7bn in a 2021 January private financing .
The move from Deliveroo to float its share price in London was reinforced after last Wednesday’s budget, when Rishi Sunak announced proposals to change listing rules in allowing founders to retain more control after the company goes public. This is an incentive for companies to list in London over competing cities like New York or Amsterdam. Co-founder and current CEO Will Shu intends to retain control of the group and will look for a standard listing on the London Stock Exchange (which means Deliveroo will be excluded from indexes like the FTSE) .
This article was first published in the University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 16 in early March 2021.
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