MacroScope

Osborne stakes out election ground with little fiscal leeway

The annual UK budget is always a big set piece but it’s hard to remember one where there have been fewer advance leaks – indicative of a steady-as-she-goes approach by George Osborne.
Having put so much political capital into reducing the deficit, to switch now at a time when the economy is recovering strongly would be politically risky. And with debt falling only slowly there is little fiscal leeway.

That’s not to say this isn’t a big political moment. Yes there is the finance minister’s autumn statement and another budget before May 2015 elections but this is the moment when the narrative for the economy and Britons’ wellbeing is staked out.

So expect a further increase in the threshold at which income tax starts to be paid, to help the poorer, and measures to boost business investment in an attempt to rebalance the economy.
Osborne will also extend his “help to buy” housing scheme, questionable at a time when property prices are rising strongly. On the thrift front, he will announce details of a ceiling on welfare spending.

Already, the Treasury has released figures showing most workers have seen their pay rise by more than inflation in recent years, an early riposte to the opposition Labour party’s claims that while the economy may now be growing strongly most of the country doesn’t feel it because living standards are falling. Labour is ahead in the opinion polls but its lead is what pollsters call “soft”.

Osborne is also likely to herald the point at which the UK economy gets back to the size it was before the financial crisis. That could happen in this quarter or the next but it’s taken an awful long time to get there. And of course there will be plenty of blame heaped on the previous Labour government for failing to avert a financial crisis that engulfed the whole world.

South Africa sovereign risk

MacroScope is pleased to post the following from guest blogger Peter Attard Montalto. Peter is emerging market economist at Nomura International and here outlines why he is cautiously constructive on the issue of sovereign risk in South Africa.

Recent events in South Africa have sent some conflicting signals to investors about sovereign risks. On the one hand there was some regulatory flip-flopping over the Vodacom listing given objections from the union organisation COSATU, which raised questions about the influence of unions in Jacob Zuma’s administration. On the other hand the sovereign issuing some $1.5 billion was highly successful and oversubscribed.

With Zuma recently elected on a platform of change for his domestic audience and continuation of old policies when speaking to investors, there is a raft of new ministers and new ministries and quite a bit of policy uncertainty. No foreign investor will deny South Africa’s need to address serious social problems of inequality, housing, jobs and education through a more developmental state agenda. However investors I speak to simply want to see that this is not at the expense of the productive sectors of the economy.