Adam Ruddle, Chief Investment Officer at LV=

As the dust settles on the recent Autumn Budget, Adam Ruddle, Chief Investment Officer at LV=, looks at the impact of the Budget on investment markets.

With much of the revenue consolidation pushed towards the end of this government’s term, the uncertain nature of the increased taxation, market comfort may evaporate given the potentially low reliability and credibility of the announced revenue raising measures. 

Bond markets in particular were comforted by the increased fiscal headroom from under £10bn to over £20bn.

Market reaction & economic outlook

• Market reaction was relatively benign as many of the initiatives were already priced in. Now, the market needs to balance the positive news of increased fiscal headroom against the backloaded revenue raising measures where the credibility of the expected revenue raised is relatively low.
• Initially spooked by early release of the Office for Budget Responsibility forecasts, gilt yields rose before ultimately falling between 2bps to 10bps.
• Whilst falling gilt yields was the desired market reaction, we would reflect that this was largely a removal of the “Budget uncertainty” premium within yields, rather than a sign of market support for the budget measures.
• Sterling strengthened, moving upwards 0.6% against the US Dollar and 0.4% against the Euro.
• This Budget avoided a repeated unintentional increase to inflation, and instead appears to complement the Bank of England’s goal of bringing inflation down to target. Freezes on fuel duty, rail fares and reductions in electricity bill levies are expected to reduce headline inflation by 0.4 percentage points in 2026.
• UK banks avoided any additional taxation which will have supported share price valuations and credit sentiment.

Impact on asset classes

• UK consumer confidence and consumption have been weak amidst the speculative and lengthy build-up to the Budget. Uncertainty also detrimentally deferred investment decisions of UK businesses.
• As the Budget supports further and faster monetary policy easing from the Bank of England the key question is whether this easing will be sufficient to offset the low growth measures in the Budget. If it is, domestically focused UK equities should benefit.

Long-term investment strategy

• We do not envisage any changes to our long-term investment strategy as a result of the 2025 Budget. We are comforted that we have a globally diversified investment strategy that offers greater resilience for robust investment returns.

Adviser support and resources

We’ve provided immediate commentary and practical analysis across our Technical Hub and Adviser Investment Hub to help advisers understand the implications for planning and investment conversations. These resources will continue to be updated as further guidance emerges.

The LV= Technical Hub provides clear, accessible breakdowns of tax changes, pension measures, and key fiscal announcements. For market and portfolio-specific insights, the Adviser Investment Hub hosts the latest investment commentary, CIO updates, and video analysis.

It may take some time for the measures announced in the Budget to be fully reflected in the investment markets, especially where revenue raising consolidation has been backloaded with uncertain revenue projections given the untested nature of some of the tax rises. 

We believe our suite of Smoothed Managed Funds will continue to withstand market volatility and generate superior risk-adjusted investment returns leveraging more than 20 years of our smoothing mechanism, our award-winning investment teams and strong asset management partnership.

Important information

Investments can go down as well as up. Past performance is not a reliable guide to the future. Smoothing doesn’t prevent losses in long-term falling markets.

Although it’s unlikely, we may, at our discretion, need to suspend the smoothing mechanism to protect our members and our business. This could be required if the underlying daily fund price was less than 80% of the value of the smoothed price, or in other exceptional circumstances. In the rare event we do need to take this step, the fund would typically be valued on the underlying price or, at our discretion, on a daily gradual averaged price (except ISA which would be valued on the underlying price) until smoothing is reintroduced.