UK News

Insights from the UK and beyond

from The Great Debate UK:

Budget day: Politics not economics

--Sam Hill is Senior UK economist at RBC. The opinions expressed are his own.--

The headlines generated by the forthcoming UK budget are likely to be political rather than economic; the general election is next year. Despite a faster than expected fall in unemployment and inflation, macroeconomic developments since the December autumn statement present limited scope for forecast revisions to government borrowing. But come the post-budget analysis, some of the seemingly esoteric revised economic assumptions may have important consequences for how the budget is perceived politically.

The modest changes we do expect to the economic forecasts would be seen as positive in essence. Small upgrades to the growth outlook should translate into borrowing reductions of  between £3 billion and £6 billion per year throughout the five-year horizon. That would leave the underlying measure of borrowing at £332 billion for the six years to 2018-19, down from £358 billion in the existing forecast from December, which itself represented a significant improvement on last year’s budget.

In these terms the presentation of the budget maths looks, on the face of it, to be a good news story for the government. It can claim deficit reduction is getting back on track. The complication comes though in the assessment that is made by the Office for Budget Responsibility (OBR) about the responsible way to approach tackling the rest of the deficit from here.

The risk for the government is that the OBR’s updated outlook leads to the conclusion that further tax hikes or spending cuts are needed – despite those falls in the overall borrowing forecast. Whether or not this happens depends on how much below its capacity size the OBR thinks the economy is operating, both now and in future. The further below full potential the economy is judged to be, the more of the deficit it is safe to assume will disappear naturally as the economy grows. Conversely, if the OBR say there is no spare capacity, the entire remaining deficit from that point must be dealt with by announcing further policy tightening. This portion of the deficit is the structural deficit.

from The Great Debate UK:

Budget preview: Don’t expect pyrotechnics

--Nick Beecroft is Chairman, Saxo Capital Markets, Saxo Bank. The opinions expressed are his own.--

Those expecting a rivetingly exciting spectacle when the chancellor announces his budget next Wednesday will be in for disappointment, but that doesn’t mean that this won’t be an intensely political budget, given this really represents his last chance to make changes which will be fully appreciated by the electorate by the next general election. Having said this, his room for manoeuvre is limited, and the effect on the overall fiscal balance will be minimal.

from The Great Debate UK:

Budget background: Dark with light patches

--Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.--

Spring has sprung.

The grass has riz.

I wonder when the Budget is….

On 19th March actually or, more importantly in this age of nonstop campaigning, six weeks before the European elections and barely a year away from the general election. Since the 2015 Budget will be too late to affect our wallets before we go to the polls, this is George Osborne’s last chance to reassure us that the economic situation is under control. Will he be able to resist the temptation to give us a reward for our patience through four years of austerity and to reassure us that the misery is nearly over?

from The Great Debate UK:

UK recovery, but not on the high street

It was only a few days ago that George Osborne declared victory on economic malaise saying that the UK economy has turned a corner. The economic data has improved dramatically in the last six months, which gave Osborne a battering ram to launch a political attack on the Labour Party. Osborne used his moment in the sun to prove Ed Balls and all on the other side of the political bench wrong, saying that his austerity programme is right for Britain.

However, a little over 24 hours after Osborne’s speech a report from the Local Data Company made for uncomfortable reading as it detailed grim conditions on the UK’s high streets. High Street vacancy rates remain stubbornly high; out of 650 town centres in the UK the average vacancy rate is 14.1 percent, which is basically unchanged since February.

from Breakingviews:

Boris Johnson intervention reduces Brexit chances

By Hugo Dixon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own

Boris Johnson's intervention in the European debate reduces the chance of a British exit from the European Union - or Brexit. The Mayor of London, a popular Conservative politician, says he will campaign to keep Britain in the EU provided it can negotiate a pared-down relationship based on the single market.

from Breakingviews:

The real UK plan B: protecting against euro chaos

By Hugo Dixon and George Hay
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Pundits say Britain needs a plan B to boost growth. What it really needs is a contingency scheme to handle a euro explosion. The central planks should be for the government to keep adequate fiscal firepower in reserve to handle a crisis and to shore up the country’s banks.

from Breakingviews:

Becalmed UK in danger of double dip

By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The UK economy looks dangerously becalmed. While GDP did increase a good-looking 0.5 percent in the third quarter, the number was flattered by a catch up from a royal wedding-distracted spring. Besides, there has only been a 0.5 percent rise over the full year. And now a euro zone storm is brewing. That Tuesday's UK manufacturing survey for October dropped to the lowest level for over two years is no coincidence -- but is alarming.

from Breakingviews:

UK will get QE2 – but may need fiscal help too

The odds are moving rapidly towards a launch of QE2 in the UK. A second bout of quantitative easing - printing money - would be controversial. But a fragile economy needs extreme treatment - monetarily, and probably fiscally, too.

Britain's substantial home-grown problems are being exacerbated by crisis in the euro zone. UK unemployment crossed 2.5 million in the three months to July. Activity in services, the bulk of the economy, almost contracted in August. Wages, up just 1.7 percent in the past year, are falling fast in real terms, impoverishing consumers and threatening deflation. And exports are stalling: the euro zone is the UK's main trade partner.

Ignore the data, Royal Wedding and sunshine give Britain Plc a Q2 kickstart

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A lot of the economic data in recent days has made for pretty grim reading, reinforcing expectations that interest rates will remain at record lows for some months yet.

But a string of bullish updates from British retailers and manufacturers suggest that the second quarter could have got off to a flying start, with fine weather, the Easter holiday and the Royal Wedding all improving the national mood.

from The Great Debate UK:

Waiting for the other shoe to drop

USA/

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own and do not constitute investment advice. -

The unemployed and the terminal insomniacs who have nothing better to do than read my blogs will know that I have long been gloomy about most of the Western economies. How can you fail to be pessimistic when the world economy is still dominated by the U.S. - a basket case, becoming weaker every day, with a political class too blind or too scared to admit in public the obvious fact that the country cannot carry on living beyond its means?

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