Could The Universal Credit Reduction Impact The Stock Market?
The United Kingdom recently announced a rollback in its policy of boosting Universal Credit payments by £20 a week. Although this was a controversial vote, it passed due to the government’s overpowering majority.
Although investors may not see the relation between the income of some of the lowest earners in the UK, there are some unanticipated impacts that this reduction in income might have upon the behaviour of the stock market.
Firstly, there may be an immediate impact on the performance of retailers and supermarket stocks.
Stocks including WM Morrison, Tesco and the Ocado Group may be at risk. This is because the weekly £20 was likely spent on living costs due to the fact it was in place to supplement the income of those that are less wealthy.
Over £1000 a year worth of income reduction means that supermarket sales levels will see an impact, which will be reported in the next round of financial reports.
A mitigating factor to this is that the downturn in Universal Credit coincides with the Christmas period.
Spending naturally increases around this period, so the underlying revenue changes of supermarkets will balance out towards positive quarter-on-quarter growth. Although specific weekly forecasts comfortable prior to the Christmas period may show underperformance, it is unlikely that this will transfer to an impact upon quarterly figures.
Depending on the timing of reports releasing, it may be wise to divest from supermarket shares in the short term.
If you possess any shares from companies that offer quarterly reports inclusive of October and November whilst excluding December, that quarter is likely to show comparatively negative results which can cause a shock in the stock market.
Divesting for this period and re-buying immediately following the release of the report is ideal, as you profit from the dip whilst retaining your shares into the Christmas period.
On the other hand, if you own stocks in companies that include October and November with Christmas sales, you don’t need to act. This is because forecasts will likely be met, and the impact of Universal Credit changes will be obscured by the boost in revenue shops see at Christmas.