The United Kingdom used to have have two annual Budgets (what the UK Treasuary calls “fiscal events”), one in the Spring and the other in the Autumn. But from 2017 it is switching to having just one Budget in the year – in the Autumn. The reason is to allow major tax changes to occur annually, before the start of the fiscal year. (Further info on the new Budget timetable can be found on the Treasury web site.)
So, 2017 saw the last Spring Budget, and the Autumn Budget will take place on Wednesday 22 November 2017.
Below we look at the immediate effect of the Budget on three asset classes in the three days around Budget Day:
- B(-1): the day before the Budget
- B(0): Budget Day
- B(+1): the day after the Budget
The following chart plots the daily returns for the FTSE 100 Index for the three days around Budget Day for the years 2000-2017. For example, in year 2000 the Budget was on 21 March, the day before the Budget the FTSE 100 rose 1.04%, on Budget Day the index fell 0.13%, and on the day after the index fell 0.12%.
Similar to the above, the following chart plots the daily returns of GBPUSD around Budget Day from year 2000.
And, finally, the performance of gilts (the 8% Treasury 2021 is taken as a representative gilt) around the budget.
The following chart shows the average returns for the period 2000-2017 for each respective asset class for the three days around the Budget.
And the following chart shows the proportion of positive returns for the three asset classes in three days around the Budget.
On average since 2000 the equity market has seen mildly positive daily returns on the day before the Budget and on Budget Day itself. But the most significant observation is that equities have been weak on the day after the budget.
On average the pound against the dollar has seen little change on the day before the Budget and on Budget Day itself, but has been strong on the day after the budget.
While, on average, gilts have been weak for all three days, with the weakest day being the day after the Budget.