uk government spring 18 statement - preview
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Monday, 12 March 2018


  • Slimmed down economic update as budget moved to Autumn
  • Expected improvement of GBP10Bln in public finances for 2017/18  
  • Stronger data suggest stronger growth forecasts from OBR
  • Future Brexit payments to the EU made available alongside
  • Set for release at 1230 GMT on Tuesday, 13 March


Following schedule adjustments, UK Chancellor of the Exchequer Philip Hammond will not be brandishing the red briefcase on the steps of Downing Street this week. Instead, opting for a slimmed down economic update, Hammond will deliver updated forecasts on the shape of the UK economy.


Philip Hammond announced the decision last year to move the timing of the budget to Autumn to align with international best practice and allow for increased for Parliamentary scrutiny. In its place remains the “Spring Statement”, with delivery limited to ten to fifteen minutes to not take any attention away from the main event for British fiscal policy.  


With no major policy announcements expected, Hammond will be providing the latest economic and public finance forecasts from the Office for Budget Responsibility (OBR). A positive tone is anticipated from the Chancellor with an undershoot of the 2017-18 budget target and a downward revision to next year’s projections.


Due to a dual economic boost from improving productivity and rise in tax returns, public finances remained tight in the final months of the year and delivered a solid surplus of GBP10Bln in January. Budget execution is well ahead of targets two months before the end of the fiscal year, but the Chancellor is likely to bank rather than spend the growth windfall.


With government borrowing falling back to pre-financial crash levels, the Chancellor is facing growing scrutiny to tackle seven years of austerity. Commenting on Sunday evening that there’s “light at the end of the tunnel” regarding debt, Hammond revealed the details of a public spending review may come in the Autumn Budget.


Evaluating the entire fiscal year, economists at Morgan Stanley predict that the improvement of GBP10Bln was not driven by temporary factors and the UK’s increased performance will persist. “We see a modest offsetting drag from higher interest rates pushing up debt interest costs,” noted the economists.


Reinforcing a more positive image on the UK economy, the OBR’s growth projections are expected to be revised higher, following stronger data. However, depicting only a temporary improvement, analysts at Barclays believe that only short-term forecasts will be revised.


“GDP and productivity growth have been stronger than expected in the OBR's November projections suggesting the potential for an upgrade in near-term outlook; however, the longer-term forecasts are unlikely to be revised much,” concluded analysts.


Included in the Chancellor’s Spring statement will be the OBR’s initial estimate on the impact of the Brexit divorce payments on UK public finances. Presented in a chart, decades of payments from Britain to Brussels will be made available for scrutiny for the first time.  


The shift to one fiscal event per year reflected a hawkish stance from Chancellor Hammond, allowing for a reduced opportunity to ease policy. Despite being promoted as a low-key event, the Spring statements contents and the outlook for the UK economy could drive a significant move in gilts, as noted by analysts from Societe Generale.  


“Favourable budget news would coincide with Bank of England purchases creating a supportive backdrop for gilts and should see gilts remaining well supported versus swaps” noted the analysts.


Peter Devlin (@dev_peter) – LiveSquawk News

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