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| | Hi Friend, Beware The Ides of March ... The Bond Vigilantes are watching ... Good news for the Chancellor last week. The government borrowed £5 billion less than
expected in the first nine months of the financial year. The chancellor,
is now estimated to have between £15 billion and £20 billion to spend
on his budget in March. What a stroke of luck!
OK don't look too
much at the detail, borrowing was up by £11 billion compared to the
same period last year. That's an increase of 10%. Pro rata the
government is set to borrow £145 billion in the financial year,
compared to £130, billion last year.
Great things are
expected in the January tax receipts data, out next month, to bring
borrowing into line with the OBR's £124 billion forecast, so watch
this space.
In detail, the government borrowed £119.1
billion in the period from April to December, according to the Office
for National Statistics, lower than the £124.1 billion projected by
the OBR, in the November autumn statement.
For the month of
December borrowing was £7.8 billion, much lower than the £11
billion forecast by City analysts and the lowest amount in five years.
Debt
interest spending fell sharply to £4 billion, down by £14.1
billion compared with December 2022, reflecting lower inflation and
market interest rate expectations.
The OBR commented "The
difference with our forecast is primarily explained by debt interest
payments, which were $5.7 billion below our forecast profile last
month. Inflation has fallen faster
than expected. This drop has lowered the amount of cash that the
government pays holders of its debt, a large share of which is tied to
the retail price index.
The latest data increases the chances
of Jeremy Hunt cutting taxes in the budget on March 6. The chancellor,
is estimated to have between £15 billion and £20 billion to spend
at his budget in March.
"It's all a bit rum" says David Smith writing in the Times ...
"Last
autumn the chancellor thought he would have no room for manoeuvre,
until a change of forecast from the OBR provided him with the scope to
announce a two percentage point reduction in employee national insurance
contributions and make "full expensing" permanent. Until then, the
autumn statement would have been very thin gruel". says Smith..
"It
is, as I say, all a bit rum. In the space of a few weeks in the autumn,
the OBR, moved from a position in which the Chancellor had no money to
play with, to one where he could announce some crowd pleasers because of
the effect of higher inflation on tax revenues. In the few weeks since
then, it seems it has moved from a position in which he had used up all
his bounty, to one where he can provide even more
crowd pleasers."
Now it would appear the debt interest
payments have been recalculated, to massage way the onerous debt service
burden, in the months prior to preparation on the March budget
forecasts.
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| | Hunt's spending plans worse than fiction, budget watchdog suggests
Jeremy Hunt's budget forecasts have been savaged by Richard Hughes, giving evidence before the Treasury Select Committee this month.
The chairman of the Office for Budget Responsibility (OBR) has essentially called the government's post 2025 plans, or the conspicuous lack thereof, a flight of fiscal fantasy.
In a striking attack on the government Richard Hughes, chairman of the Office for Budget Responsibility, said ministers were not being honest with voters about the probable scale of public sector cuts because they had failed to publish detailed spending plans for the period after April 2025.
'Beyond 2025 we know virtually nothing," Hughes told the Lords economic affairs committee. "It is just two numbers one for total current spending and one for total capital spending. I think some people have referred to that as a work of fiction. I think that's probably generous, given that someone has bothered to write a work of fiction whereas the government hasn't even bothered to write down what its spending plans are."
Despite the government's borrowing being lower than the OBR's autumn statement projection, the fiscal future is fraught with challenges, including the need to finance healthcare for an ageing population. Hughes suggests that without a fundamental rethink, the path could lead to unsustainable debt.
That budgets are akin to "a work of fiction" is a message rammed home relentlessly by economists. Jeremy Hunt's rule to get debt falling by year five of his forecast, they say, is possible only because spending cuts for public services and spending cuts, few believe are plausible, are penciled in far down the line.
It is reminiscent of the magic asterisk by President Reagan's budget director David Stockman. The "magic asterisk" was a method to identify future deficit problems that were to be addressed with additional reductions to be announced at a later date. "Cuts as yet to be identified", the concept. Procrastination and a way for politicians to avoid making difficult decisions, the process.
The OBR's Chairman Richard Hughes is waving a red flag, cautioning that the government's fiscal fiction and the use of a magic asterisk, could lead to a non-fictional crisis if not addressed with greater transparency and prudence. Meanwhile ...
The Bond Market Vigilantes Are Watching ...
Bill Clinton's chief strategist James Carville famously said: "I used to think that if there was reincarnation, I wanted to come back as the President or the Pope. But now I would want to come back as the bond market. You can intimidate everybody."
The Conservatives risk reigniting the debt crisis that brought down Liz Truss with reckless tax cuts or spending plans, a top bond investor has warned.
Pictet, a Swiss bank that manages almost £600bn of assets, said concerns over British stability have not gone away and the markets will be quick to punish financial recklessness.
Cesar Perez Ruiz, the company's chief investment officer, warned Labour not to launch a spending spree if it wins the election. He also cautioned Rishi Sunak against unaffordable tax cuts in his attempt to remain in Number Ten.
Pictet said he will avoid buying government debt and sterling amid concerns over the general election later this year. He said he was worried about the run-up to the election, warning that "if Sunak wants to get any chance of reelection, maybe he will overspend ahead of it".
Debt Issuance is Huge ...
According to the OBR, the level of borrowing is set to exceed £400 billion over the next five years. According to the Debt Management Office, the level of redemption, due to be refinanced, is over £600 billion over the next five years. That's a trillion pound funding task for the Debt Management Office.
Fortunately, the Bank of England will be on standby, as the Buyer of Last Resort, should the DMO have trouble at the pump. For Jeremy Hunt the caution prevails ...
Beware The Ides of March ... The Bond Market Vigilantes are watching ...
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| | That's all for this week. Have a great week ahead ...
John
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| To understand the markets, you have to understand the economics ...
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© 2024 John Ashcroft, Economics, Strategy and Financial Markets, experience worth sharing.
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