***How the Chancellor has hit your pension hopes again
***The real reason behind Brown's champagne tax freeze
***RECOMMENDED ARTICLES: Why the US will turn Japanese by 2010... Is the US housing cash cow running dry?...
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"The economy is strong and strengthening," said the Chancellor near the start of his Budget 2006 speech.
You might well agree with this if rising unemployment, record bankruptcies, rising house repossessions, weak high street sales and a near-record trade deficit form part of your picture of the ideal economy.
But it seems that Gordon Brown is happy enough with the way things are going. His latest Budget contained very little in terms of big changes.
Of course, being Gordon Brown, he couldn't resist tinkering...
£600m to fund "world class British athletes", an increase in the number of community support officers (or "yellow-clad numpties" as one senior police officer famously called them) from 6,000 to 16,000, free off-peak national bus travel for pensioners Budget 2006 contained even more of the essentially irrelevant micro-management we've all come to expect from Mr Brown.
One of the few points of interest was the decision to raise the proportion of long-dated gilts issued from half to about two-thirds of all Government debt. This apparently reflects "the benefits we now gain as a country from long term stability," according to the Chancellor.
Of course, that's not strictly true. What it actually reflects is the fact that the Government has effectively forced pension funds to buy these long-dated gilts to match their liabilities. Because there aren't enough gilts available, the price has soared and yields have plunged.
New Star economist Simon Ward described the level of issuance as "disappointingly timid", saying the increase was "unlikely to be sufficient to break the log-jam caused by forced pension fund buying and record foreign demand."
But then, maybe the Chancellor is quite keen on the log-jam staying just as it is. "It is interesting to note that over the last five years, the Government has strengthened reserving requirements for both insurers and occupational pension schemes. This creates demand from both types of investor for long-dated gilts and therefore provides the Government with very low cost finance," said Simon Farrant at Towry Law.
Unfortunately, that leaves the rest of us stuffed when it comes to collecting our pensions. Declining long term interest rates also drive down annuity rates. But then the Chancellor doesn't have to worry about that, because he's sitting on a nice comfortable MP's pension which will pay him a very generous and completely secure proportion of his final salary from the day he retires to the day he dies.
But never mind. There was good news for property companies and their shareholders - and we're not talking about the token £5,000 rise in the initial stamp duty threshold to £125,000.
Shares in property groups such as British Land, Hammerson and Land Securities soared after fresh proposals on Real Estate Investment Trusts (Reits) were welcomed by the City.
There had been concerns that the Chancellor's Reits plans would contain restrictions that made them unworkable. However, restrictions on borrowing were relaxed by more than most commentators had expected, while the proportion of net profits that has to be given back to shareholders was cut back to 90% from 95%.
"The announcements represent a large improvement on expectations," said Charles Stanley analyst Tom Gidley-Kitchin.
Other than that, the other headline-grabber was the Chancellor's attack on the much-maligned "Chelsea tractor" brigade. Road tax was pushed up to £210 on cars that issue high levels of carbon dioxide, but reduced to zero for the cars that pollute least.
You can't blame Mr Brown for targeting big cars. Now that the Government is set to ban smoking in public places, the hunt is on for new sin taxes to take up the shortfall in revenue. Taxing those who drive 4x4s has the twin benefits of being environmentally friendly and appealing to the class warrior in every red-blooded Labour voter.
And one other thing - tax on wine went up 4p a bottle, tax on beer rose 1p a bottle, but duty on champagne was frozen. Interestingly enough, champagne has just been added to the basket of goods used to calculate consumer price inflation. Could the Chancellor's decision have been swayed by a desire to help keep the official inflation figures down? Surely not...
Moving away from the Budget, the Bank of England's interest-rate setting committee once again voted 8-1 to keep the UK's key rate at 4.5% in March. The sole dissenter was Professor Stephen Nickell, who voted for a cut for the fourth month in a row.
Professor Nickell doesn't have much time left to persuade the MPC to change their minds he's leaving the Bank at the end of May. But the Treasury has announced his replacement as one Professor David Blanchflower. The new member is an expert on the labour market and an economics professor. Will Professor Nickell's replacement be as keen on cutting rates? As the new member has been chosen by the Chancellor, the chances seem high that he will be.
Turning to the stock markets
The FTSE 100 closed 16 points higher at 6,007, its highest level since March 2001. Property groups were the main risers, boosted by the Chancellor's announcements on Reits. Shares in Land Securities jumped 13% to £20.80, British Land gained 12% to £13 a share and Hammerson leaped 9% to £13 a share. For a full market report, see: London market close.
Over in continental Europe, the Paris Cac 40 climbed 46 points to 5,194, while the German Dax gained 20 to close at 5,932.
Across the Atlantic, US stocks moved higher as investment bank Morgan Stanley reported forecast-beating first-quarter profits. A decline in 10-year Treasury yields also reassured investors that long-term interest rates aren't about to pick up dramatically. The Dow Jones climbed 81 points to 11,317, its best close since May 2001. Meanwhile the S&P 500 gained 7 to 1,305 and the tech-heavy Nasdaq rose 9 to 2,303.
In Asian trading hours, oil was higher, trading at around $62.40 a barrel in New York. Brent crude was trading at around $61.40 a barrel.
Meanwhile, silver slipped from its 22-year high of $10.59 an ounce, edging back to around $10.48. Spot gold eased too, to trade at around $550 an ounce.
In Asian stock markets, the Nikkei 225 fell 6 points to 16,489, as the market took a breather after recent gains. But commercial land prices in Tokyo, Osaka and Nagoya - the country's three largest cities - all showed gains for the first time in 15 years, more evidence to show that the property market is finally rebounding in Japan. Nationwide, land prices fell by the smallest amount since 1991.
And in the UK today, supermarket group William Morrison has reported its first annual loss in its 106-year history. The company has suffered severe indigestion following its attempt to swallow rival Safeway - costs of integration have been about 50% more than Morrison first estimated.
And our two recommended articles for today...
Why the US will turn Japanese by 2010
- How have US consumers managed to keep spending in the face of the economic upheaval of recent years? The answer is simple, says Harry S. Dent in the Daily Reckoning - demographics. The largest section of the Baby Boomer generation will be past their peak spending years by 2010, which will lead to a Japan-style slump. But to find out why he believes there will be another market boom before then, click here: Why the US will turn Japanese by 2010
Is the US housing cash cow running dry?
- Rising repossessions, falling sales - the US housing market looks set to follow the same path that the UK's did in 2005. But with the global economy relying on the US consumer's ability to keep spending, a slowdown on the other side of the Atlantic could be much more serious, say Andrew Selsby and John Robson at RH Asset Management. To find out why the situation in the US property market seems likely to deteriorate further, click here: Is the US housing cash cow running dry?
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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