Brigitte Bardot, the "impossible dream of married men", will be 80 years of age tomorrow. Now a great grandmother, in a birthday interview for Paris Match, Ms Bardot claimed “I have loved a lot, passionately madly and not at all. Yet, I only keep one man in mind : the next one”.

I feel much the same way about economic forecasts. I love a lot, passionately and madly,  some not at all. I only keep one forecast in mind - the next one. Especially the next forecasts resulting from the GDP revisions out next Tuesday. The inclusion of drug dealing and prostitution for the first time, will no doubt, boost output and productivity in the UK economy. UK growth forecasts for the year will be revised as a result. The productivity dilemma resolved, understanding economic agents, burn a spliff, lie back and think of England as they contribute to economic growth.

Forecast Revisions …
Good news from Spain this week, as forecasts of growth have been revised up. The Finance Minister, Luis de Guindos has suggested growth this year will be 1.3% and 2% next. Still some way to go to full employment, the government now expects the unemployment rate to be 22.9% in 2015, down from prior forecasts of 23.3%.

In the USA, growth in the second quarter has also been revised up! The annualised rate of growth revised higher to 4.6% from the previous 4.2%. The underlying growth rate (year on year) revised to 2.6% in the quarter. We now expect US growth of 2.5% for the year as a whole, following the slow start in the first quarter.

The Manchester Index™,
In the UK, the economy is on track for growth of 3.1% this year slowing to 2.8% next according to the latest data from GM Chamber of Commerce Quarterly Economic Survey and the influential Manchester Index™.

The Manchester Index™ index moderated from 33.6 in Q2 to 32.0 in the third quarter largely as a result of the change in outlook for exports. The index remains above the pre recession average for the period 2005 - 2007.

The outlook for home orders and deliveries improved slightly in both the service sector and the manufacturing sector. Exports, on the other demonstrated a significant fall in deliveries in both manufacturing and services. Service sector orders fell but the drop in export manufacturing orders was particularly marked. Overall confidence in turnover and profits was maintained and the prospects for employment and investment was particularly marked.

Borrowing figures …
Government borrowing figures were released this week. Public sector net borrowing was £11.6 billion in August, an increase of £0.7 billion compared with August 2013. For the year to date, total borrowing was £45.4 billion, an increase of £2.6 billion compared with the same period in 2013/14. Receipts in the month were boosted by Stamp duty up 24% and VAT receipts with a recovery in income tax payments, up by 2.4%.

The cautionary note, expenditure £54 billion increased by 3.3%. The government is off track to meet the deficit targets this year. The good news, borrowing was revised down for 2013/14 to £99.3 billion. The reduction to £95 billion this year, less of a challenge as a result but there is still much to do with seven months to go before the end of the financial year if the targets are to be hit.

So what of base rates …
The Governor delivered a speech in Wales this week. “With many of the conditions for the economy to normalise now met, the point at which interest rates also begin to normalise is getting closer. In recent months the judgement about precisely when to raise Bank Rate has become more balanced. While there is always uncertainty about the future, you can expect interest rates to begin to increase. We have no pre-set course, however; the timing will depend on the data.”

So what does this mean for UK rates? As we said last week, weak growth in Europe, monetary accommodation in the US, low inflation and earnings data in the UK, will push the increase in UK base rates into 2015. Despite the schism on the committee, the MPC will be reluctant to move ahead of the Fed. The timing will depend on the data. The inflation and pay data says “don’t move yet but February is the best bet”.

So what happened to sterling this week?
Sterling slipped against the dollar to $1.624 from $1.630 but up against the Euro at 1.280 from 1.270. The Euro closed against the dollar at 1.269 (1.270).

Oil Price Brent Crude closed down at $96.83 from $98.08. The average price in September last year was $111.60.

Markets, moved down. The Dow closed at 17,017 from 17,291 and the FTSE closed down at 6,649 from 6,837.

UK Ten year gilt yields move up to 2.46 from 2.55 and US Treasury yields closed at 2.53 from 2.62. Gold moved sideways at $1,221 from $1,218.

That’s all for this week. Join the mailing list for The Saturday Economist or forward to a friend.

John
© 2014 The Saturday Economist by John Ashcroft and Company : Economics, Corporate Strategy and Social Media ... Experience worth sharing.

The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of investment advice.

The week of the budget …
“I have never shied away from presenting difficult truths to the British people. And one difficult truth the British people must confront, is that by this time next year, I may well appear to be the most successful Chancellor in UK history.”

Well it would have been a great start to the budget speech - and yes it could well be true! Growth up, inflation down. Employment up, borrowing down, just the trade figures will continue to disappoint. Construction will be much higher. Investment and real earnings will be rising by the second half of the year. The Tories could not hope for a better economic platform to pitch at the hustings next year. The Budget 2014 simply enhanced economic prospects for the year ahead.

Proclaimed as a budget for makers, doers and savers. The savers did particularly well but above all else, it was a budget for voters. The Chancellor offered a prudent budget with fiscal constraint and an obvious eye on the electorate. “Fixing the roof whilst the sun is shining” the mantra. It is clear the Bullingdon boys are fixing the roof in Downing Street, intent on a prolonged stay beyond May 2015.

For a more comprehensive note on the budget itself, check out the full post here. It was a budget which 24 hours later was considered (by the IFS and others) to be more expansionary than at first thought. It was a clever budget. Hard to think it came from the same stable as the "omni shambles"  just two years ago.

The polls have Labour just 3 to 4 points ahead of the Conservatives. Tory analysts will have an eye on the 1986 rally. A fifteen point swing in just twelve months, to enable the Thatcher administration to stay in power. The Lib Dem vote has collapsed, the UKIP vote will evaporate. The Chancellor has created a winning platform. It will be difficult, but not impossible, for Prime Minister Cameron to slip from the podium.  

Borrowing …
The borrowing figures for February were released on Friday. At first sight the figures appear disappointing. Borrowing in the month was £9.3 billion, slightly up from £9.2 billion in the prior year. Heading in the wrong direction? Not really. The prior year figures were enhanced by the £2.3 billion sale of 4G licences.

For the year as a whole the OBR projections assume borrowing of around £108 billion in the year down from £115 billion last year.

Over the next four years, assuming the budget forecasts for spending are achieved, borrowing could be eliminated within four years. Entirely plausible. Then the real task of reducing the £1.5 trillion debt can begin.

Unemployment …
The good news on employment continued with further news this week. The claimant count fell by almost 35,000 in February to a rate of 3.5%. Over the last twelve months the count has fallen by 360,000 to a level of 1.175 million. Over the last three months, the count has fallen by 100,000.

On current trends, assuming growth of around 2.7% in the year, the unemployment level could fall below 1 million by the end of the year, hitting the critical 2.5% rate by the middle of next year. Why so critical? This would be the best performance since the beginning of 2008. A 2.5% claimant count rate is consistent with earnings of 4% - 5%. Far more than current achievements of 1.5%.

“Spare capacity” could become a scarce resource, sooner than we think. Base rates are set to rise in the first half of next year. The rate rise could be sooner and thereafter faster than we are currently led to believe.

Rate rise USA …
Janet Yellen as the new head of the Fed gave a clear indication, US tapering will continue with a possible elimination of the whole QE programme by the Fall. Thereafter Yellen made clear, US rate rises are likely to follow within six months.

Watch the UK and add six months, our mantra modified to perhaps three months, the guideline last week. On current job trends, we caution, watch the US and don’t blink. The UK rate rise - much sooner than you think.

So what happened to sterling?
The pound closed at $1.649 from $1.662 and at 1.1956 from 1.196 against the Euro. The dollar closed at 1.379 from 1.390 against the euro and 102.27 from 101.31 against the Yen.

Oil Price Brent Crude closed at $107.37 from $108.34. The average price in March last year was $108.

Markets, the Dow closed at 16,410 from 16,107 and the FTSE closed at 6,557 from 6,527.

UK Ten year gilt yields closed at 2.76 from 2.67 and US Treasury yields closed at 277 from 2.65. Gold loves a crisis, the crisis is over as the metal moved lower to $1,3358 from $1,378.

That’s all for this week. No Sunday Times and Croissants tomorrow. All records of the tennis results - recorded - then destroyed.

Join the mailing list for The Saturday Economist or forward to a friend. The list is growing as is our research team.  

John
© 2014 The Saturday Economist by John Ashcroft and Company. Experts in strategy. Experience worth sharing.

The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The receipt of this email should not be construed as the giving of investment advice.

This was a budget for the makers, the doers and the savers but above all it was a budget for the voters, in a country which does not invest enough, export enough or save enough apparently. With just over twelve months to go to the election, the Chancellor could not have hoped for a better economic backdrop with which to revisit the polling stations in May next year.

Growth is up, inflation down, employment up, borrowing down, investment up, so all is well. Just the trade figures will continue to disappoint, as the structural deficit trade in goods will continue to provide a drain on net trade.

Despite the clear evidence of a strong recovery, the Chancellor will continue with the austerity programme. More departmental cuts planned, along with a cap on welfare spending. The chancellor is determined to “fix the roof” whilst the sun is shining. The deficit will fall over the next four years, the plan to eliminate government borrowing by 2018.

Attacks on tax dodgers, will ensure the complex tax avoidance schemes and “Corporate wraps for property” are placed under pressure. Fines for LIBOR abusers will be redirected to good causes including military charities, scouts, guides, cadets and  St John’s Ambulance.

Exporters will receive a modest boost with and increase to £3 billion in the amount available to finance export growth. Alas £ 3 billion - a small drop in the world’s five oceans, if the £1 trillion export target is to be met.

In housing, the help to buy scheme is to be extended to 2020, assisting the purchase of 120,000 new homes, with an additional 15,000 new homes planned for Ebbsfleet. Where is that?

In infrastructure, £270 million is planned for the Mersey Gateway Bridge, with a further £200 million available to fill “potholes” around the country. A modest contribution if HS2 is to proceed.

Investment also receives a boost, with a doubling of the investment allowance to £500,000.  Almost every business in Britain, will pay no upfront tax as they invest to expand capacity in the future.

Energy costs will be clipped, with caps on carbon price support and additional measures providing savings to every manufacturer in the country.

Bingo tax is set to halve, fuel duty prices will not be implemented in September, the lost revenue, partly financed by increase duties on betting terminals and offshore bookies.

Personal allowances will increase to £10,500 producing tax savings for millions of voters. Tax cuts for those on low incomes and those on middle incomes too.

But the biggest giveaway was for savers. A new composite ISA for cash and shares, new higher yielding pensioner bond, yielding 4% on a three year investment. An end to the iniquity of the forced purchase annuity. An end to caps and drawdown limits on pensions. People will have the right to access their own savings at a time of their own choosing and best of all, the abolition of the 10 pence tax rate for savers altogether. It is a vote winner for hitherto disillusioned pensioners.

The Chancellor claims this is a budget for the makers, the doers and the savers. Above all the savers appear to have done remarkably well, the makers and the doers, less so. Above all it is a clever budget for the electorate.

The Labour lead in the polls is narrowing to around five points. Tory analysts will have an eye on the 1986 pre election swing. A swing yielding over 15 points to the Conservatives in the twelve month run up to the election of 1987. The Lib Dem vote has collapsed, the UKIP vote will evaporate. This is a budget which will do little harm to the economy but a great deal for Tory spirits and voters in this critical pre election phase.

It is a budget which should be commended to the House but above all to the Tory back benchers, particularly MPs and prospective candidates in marginal seats.

© John Ashcroft 2014
Word Count 650 words