Wednesday preview: All eyes on the Autumn Budget

(Sharecast News) - The main event on Wednesday will be Chancellor and former defence secretary John Healey's first Autumn Budget and the Office for Budget Responsibility's economic and fiscal forecasts.

Susannah Streeter, chief investment strategist at Wealth Club, said: "The Chancellor isn't expected to pull many rabbits out of the hat on Wednesday, given the conditions are far from clement for surprise giveaways, with government borrowing again rising more than expected last month to £24.5 billion.

"Although the government has claimed it intends to be more supportive to business, many company owners are still bracing for more tricks rather than treats from the Chancellor's Budget. While rumours of a fresh capital gains tax raid have been quashed, speculation is centring around Business Asset Disposal Relief, formerly Entrepreneurs' Relief, which now looks in line for yet another shake-up. There are reports that the current tax break, used by retiring business owners, is set to be significantly scaled back again, with a new tax incentive potentially offering a break to those who reinvest the proceeds of a business sale into other UK businesses.

"The idea might look good on paper - as it's aimed at funnelling more proceeds of a business sale towards other start-ups and scale-ups- but it creates more uncertainty for owners and investors. Wealth Club's pre-budget survey of wealthy investors found 16% are considering moving abroad because of tax changes over the last few years, and constant changes to the tax landscape risk driving away the investment and wealth the economy needs.

"For many founders, their business is their pension. They have spent years building a company, taking risks, creating jobs and investing their own money, often sacrificing income along the way. The eventual sale is the moment when they realise the value of all that hard work, and if these changes are introduced, they could potentially eat into those proceeds."

Streeter pointed to reports that Healey is considering making online marketplaces such as Amazon and eBay responsible for collecting VAT from retailers selling through their platforms, including UK-based sellers with annual turnover above £90,000.

"The move could help level the playing field for high street shops and potentially fund business rates cuts," she said. "It would also come on top of previously announced changes to the taxation of small packages, aimed at closing loopholes that have allowed overseas retailers to undercut UK businesses with cheaper goods shipped directly to consumers."

Streeter said that while ministers have tried to sow the message that this Budget will be broadly business-friendly, it looks set to be targeted at the start-up scene and owners of smaller companies trying to compete with big global players.

"While the concept may appear laudable, there are likely to be unintended consequences. Capital needs confidence to flow freely, and constant tinkering with the tax landscape sends out the wrong message. While supporting fledgling businesses is essential, the UK also needs to attract big flows of investment to provide vital nourishment to bigger homegrown players. This means creating the conditions for capital to flow into the economy, not making investors question whether the ground beneath them will shift just as they commit their money.''

Investors will also eye interest rate decisions from the Reserve Bank of New Zealand, Bank of Canada, and the US Federal Reserve, which is widely expected to leave its benchmark interest rate unchanged at between 3.75% and 4.00%. The RBNZ is expected to lift rates by 25 basis points to 3.0% and the BOC is also set to hike rates by 25 basis points, to 2.5%.

On the corporate front, quarterly results from GSK, Standard Chartered and Aston Martin, and trading statements from Unilever, Elementis and Hunting will be released.

In the US, Google-owner Alphabet and Microsoft will publish quarterly numbers.

AJ Bell analysts Russ Mould and Danni Hewson said Microsoft's fourth-quarter earnings went some way to proving the company's heavy investments in AI were yielding tangible returns, particularly in its Azure cloud computing division.

"They also successfully dialled down concerns about AI disruption to its software business," they said.

"The knock-on effect heading into first-quarter earnings is that expectations are set at loftier heights, reflected in a decent surge in the share price in the interim. This increases the risk that Microsoft might disappoint unless it can deliver better-than-expected numbers and raise its forecasts.

"Even if Microsoft has started to demonstrate the benefits of its heavy AI spending, amid insatiable demand for data centre capacity, there is still some wider nervousness about its sustainability and another big increase in expenditure might test investors' faith.

"There will also be scrutiny of the growth of Copilot and whether the company is seeing increased usage to demonstrate clear proof that AI is being more widely adopted by businesses. The market will be monitoring whether recent price increases have had an impact on demand too."