A Very British Budget

Today we get the what could possibly be the most pre-spun British budget ever, though don’t rule out the traditional “rabbit from the hat” surprise so beloved of British finance ministers.

The important stuff for the markets is that with ratings agencies still threatening to rob Britain of its AAA status, it will be pretty much fiscally neutral – i.e. no serious economic stimulus on offer – borrowing will have come in  a little lower than expected this year and the government’s independent forecasting body will predict the economy will eke out just enough growth this year to avoid a new recession.

In other words, don’t expect much market reaction, though the fact the slightly lower borrowing may allow slightly lower debt issuance in the coming year could give gilts a small fillip.

With precious little in the coffers this will be a deeply political budget, balancing the twin needs of a centre-right/centre-left coalition, despite U.S. Treasury Secretary Geithner’s warning this week about the futility of austerity for austerity’s sake.

So what does a chancellor of the exchequer do with little or nothing to spend?
In economic terms, he tinkers. That is not to say that tinkering might not be politically explosive.

‘Ken Clarke for Chancellor’ is no joke

Ken Clarke shouldn’t underestimate how strongly the city economists polled by Reuters last week want to see him serve as Britain’s finance minister next term.


The Conservative shadow business secretary and one time ex-Chancellor gleaned a few laughs from Thursday’s BBC Question Time audience when asked about the poll, saying: “There’s a limit to how much of a glutton for punishment you’re going to be.”

But economists would dearly like to see the 69-year-old’s appetite for punishment return soon. No-one came close in the Reuters poll to touching Clarke for popularity. Some 16 out of 29 economists picked him as their first choice for Chancellor.

Good-bye to all that

Followers of the dismal science will note the passing of Sir Alan Walters on January 3. Walters was the controversial economist who advised Margaret Thatcher during what turned out — regardless of whether seen as good or bad — to be a revolution in matters both monetary and social.

Walters was one of the first British economists to challenge Keynesian orthodoxy and argue for a monetarist approach to tackling inflation. He may be best remembered, however, for his opposition to the pound joining the Exchange Rate Mechanism, out of which sterling famously crashed in 1992, and for partly prompting the resignation of Chancellor of the Exchequer Nigel Lawson who felt he had too much influence on Thatcher.

In an obituary, The Guardian newspaper concluded: “In the early days of Thatcher’s government, he was a valued member of the small group of outsiders who provided intellectual and academic support for its policies. His departure in 1989 was a symptom, rather than a cause, of the complete breakdown of trust between the prime minister and her chancellor.”