Time for the spring statement this week. The Chancellor's short speech was rendered yet shorter when "political content" was edited out by Treasury mandarins. He spoke for just twenty six minutes. Oh for the days of the "Spring Budget". There was something for which we would all sit up and take notice.
Remember when, the Chancellor would deliver the fiscal changes for the financial year ahead, just before the start of the financial year. It made sense. It could take some time. William Gladstone managed a four hour budget speech in 1853, sustained by sherry and egg. Yes, Chancellors were allowed to consume alcohol during the budget speech. Benjamin Disraeli would drink Brandy and water, Geoffrey Howe preferred a gin and tonic. Nigel Lawson opted for a white wine spritzer, Ken Clarke would drink whisky. Gordon Brown restored sobriety, with a penchant for Scottish mineral water.
Phil Hammond was in good (non alcoholic) spirits. "I am at my most positively Tigger-like" today he said, "As I contemplate a country which faces the future with unique strengths." Yep like we all speak English, the Chancellor explained. And we live in a time zone which can speak with the East in the morning and the West in the afternoon, as Liam Fox pointed out last week. "An outward free trading nation, one that is confident our best days lie ahead of us". Excellent.
The OBR is not quite so sure. Robert Chote plays "Eeyore" to Hammond's "Tigger". Forecast growth for the current year was upgraded to 1.5% but remained unchanged at 1.3% over the next two years. On borrowing the OBR is forecasting debt of £45 billion in the current year, falling to £37 billion in the next financial year. Strange that. Borrowing in the year to January was just £37.7 billion down by over £8 billion on prior year.
Why so gloomy? The OBR is worried about Local Authority budgets. The Treasury not so much! "The nicest thing about the rain is that it always stops, then starts again" as Eeyore might say. It's the same with the forecast round. No sooner has one ended then the next one starts again. Growth in 2018 was 1.7% compared to the 1.5% forecast at the time of the budget. The OBR clearly got it wrong in November.
"Forecasts are there to be beaten" said the Chancellor. "And we should make it our business to do so again". Yes even the Chancellor has concerns about the pessimistic outlook from the OBR. But then with Tigger and Eeyore, it was ever thus ...
The Kindness of Strangers ...
The Governor is worried, again, about the level of debt both internal and external. The current account deficit in the third quarter of the year was £22.8 billion. That's 4.5% of GDP.
The FPC warned this week, Britain has become even more dependent on the "kindness of strangers" to fund the shortfall. The country is reliant on the confidence of foreign investors to offset the trade deficit by capital transfers and net investments into the UK.
"The Kindness of Strangers with Inky Blots and Rotten Bonds Sustained" the message from the Cabinet Office in the 1930s. Pressure on Sterling with radical action on short rates the result. The Bank of England and the OBR are concerned about life post Brexit. The decision by Unilever to relocate the head office to Rotterdam this week will not help.
The OBR is forecasting the level of HMG debt will peak at just under £1.9 trillion over the next five years. 25% of debt is held by the Bank of England, underwritten by Treasury and (owned) by government. The Bank is committed to a continued purchase scheme, to rollover bond purchases in the future. Not so for foreign holdings.
28% of gilts are held overseas, down from a peak of 35% in 2008. £500 billion of funding is at risk if foreign anxieties develop about truly global Britain. Foreign investors must be sure "Our best days lie ahead of us". Not too much to ask but some severe doubts along the way as the implications of leaving the EU begin to impact ...
That's all for this week, (more Eeyore than Tigger) have a great week-end.
The Saturday Economist
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