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Saturday 11th March 2017
Hi Friend,
Budget week ... Nice work if you can get it ...
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All started well for the Chancellor. The OBR revised up the forecast for growth in the current year to 2%. Borrowing in the financial year was revised down to £52 billion. Thereafter Robert Chote and the OBR team lost any real enthusiasm for further significant revision. Growth is expected to be 1.6% in 2018 and 1.7% in the following year. Borrowing is more or less unchanged in 2017/18 and in all years other than a £6 billion saving in 2018/19.
Nevertheless some £25 billion of borrowing short fall was available to the Chancellor. Spreadsheet Phil was intent on building a "stronger, fairer, more global Britain". No need to splash the cash. Better to build a war chest for the potential Brexit problems ahead. Cynics might suggest a national debt of £1.7 trillion rising to £1.9 trillion within two years does not a war chest make.
The Chancellor was listening to complaints about business rates. A review of the system was to follow. In the meantime there would be some small business rate relief and a special deal for pubs. £1,000 for pubs with a rateable value of less than £100,000. Small beer, the total value of provisions was just £435 million.
There was some money for infrastructure, training and skills. Provision for PhDs in STEM subjects plus spending on AI, robotics and autonomous vehicles. The introduction of T Levels and technical skills boost was welcomed. The overall spend was parsimonious and parceled with an element of regional competition for limited funds.
In many ways the budget ticked all the boxes. The problem there was not enough cash to fill the vacuous boxes. Most of the money was to be spent on a £2 billion boost to welfare spending. Determined to be fiscally neutral, the Chancellor decided to raise the money by closing the NIC gap between the self employed and regular workers. 9% at present, the rate is set to rise to 11% over the next two years. How much nicer it would have been to level out a 10% band for all. It's just a stage 2 income tax after all.
Therein was the downfall of the Chancellor's day. Tory back benchers are now the champions of free enterprise and the self employed. Cameron and Osborne had made a manifesto pledge - no tax rises and no increases in NIC. The Prime Minister's support was nervously ambivalent. The increases will go ahead subject to a wider review in the Autumn. No need for another parliamentary fuss this month, in view of the imminent Article 50 invocation.
Spreadsheet Phil appeared at the despatch box in full command of his brief and briefcase. Time for jokes at the expense of the opposition. "They don't call it the last Labour Government for nothing" and "A party with experience of driverless vehicles" were some of the best. The opposition squirmed. The Chancellor was to squirm later. Why the back bench fuss? All of the items in the budget had been leaked to the press days before the event. No need for the red box, just a press release and an active Twitter handle would easily done the job ... As for the budget it was NICe work if you can get it ...
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Economic news this week ...
Some weeks you wait in vain for an ONS release. This is the week when they come in threes. Manufacturing, construction and trade all on a Friday. Manufacturing growth was up by 2.7% in January. It had risen by over 4% in December. Growth for the year as a whole was less than 1% for the year. Will the momentum continue into the year? We expect growth of 1.8% in 2017 a significant upward revision on our earlier estimates.
Construction output increased by 2.4% in 2016 compared to previous estimates of 1.5%. In January, growth increased by 2%. The strong increase in housing and commercial real estate is driving growth despite the set back in infrastructure and public sector spending. Growth for the current year could be up by 2% - 2.5% as the private sector commitment continues.
The trade figures for January offered additional hope to the re balancing agenda. The deficit trade in goods and services was just £2 billion. Don't get too excited, it was £1.5 billion in January prior year. The deficit trade in goods was £11 billion compared to £9 billion in January 2016. Exports are benefiting from growth in world trade and stronger GDP growth in the EU and USA. The Sterling fall offers some translation impact. The price elasticity effect is much less significant.
So what of the year as a whole. Forecasts of 2% GDP growth in the current year may well be conservative. The out turn could be as high as 2.5%. The Fed has indicated rates are set to rise next week, with at least two more rates planned for the current year. Sterling drifted lower on the news closing at $1.216 against the dollar. Strong growth rising, inflation spiking, full employment looming and EU workers leaving. All this with base rates at just 0.25%. And the winner is La La Land ...
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West Wing ... Whisky Tango Foxtrot ...
In last week's edition we were just able to catch the morning twitter tirade against Obama. The Presidential mask worn at the address to Congress had been cast aside.
"Terrible, just found out Obama had my phones tapped" "Bad (or sick guy)!" Of course there is no evidence to support the accusation. Trump had read something in Breitbart triggering the tweet. Republicans distanced themselves from the accusation. White House staffers took a step back. Sean Spicer claimed the information available to the President was above his pay grade. KellyAnne Conway confirmed the President of the United States has "access to information no one else has". The list includes the CIA and the FBI apparently.
Arnold Schwarzenegger took a hit' "He was fired by his bad (pathetic) ratings, not by me." tweeted the President and leader of the free world, "Sad end to great show". Not to worry the best show in the USA has moved to Washington. The Mexican Foreign minister was in town this week. No one told the State Department or Rex Tillerson for that matter. Louis Videgaray went straight to the White House. Jared Kushner, McMaster and Gary Cohn met with the Mexican mission.
Scott Pruitt was appointed to the EPA. Pruitt doesn't believe in Global warming, the problems of Carbon Emissions and the Paris Agreement on climate change. Interesting. Pruitt at the EPA has doubts about the EPA; Tillerson at State has doubts about the UN; Peter Navarro at trade has doubts about the WTO. Coming next the Attorney General with doubts about the Rule of Law. It's only a matter of time. Forty seven Obama attorneys were summarily fired this week.
The GOP has a pop at health care, the White House has another go at the immigration ban. Meanwhile the missiles pop out of North Korean bunkers like rockets on bonfire night. Won't happen? Really.
The good news, Trump may have inherited a mess but it hasn't taken long to sort out. The White House saluted the latest data on jobs growth this week. 235,000 jobs added to the non farm payroll in February. The unemployment rate fell to 4.7%. But wait! Isn't the BLS party to the Obama Fake News BS. Not any more! Sean Spicer assured the White House press room, "The data may have been phony in the past but no longer!" Of course, making America great again didn't take that long ...
That's all for this week from the West Wing Whisky Tango Foxtrot ...
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So what happened to Markets?
Markets, were down, the Dow closed at 20,855 from 20,986. The FTSE closed at 7,343 from 7,374. Imminent Fed rate hike subdued markets.
Sterling was down against the Dollar to $1.216 from $1.225 and was down against
the Euro to €1.139 from €1.160. The Euro moved up against the Dollar at 1.067 from 1.055.
Oil Price Brent Crude closed at $51.44 from $55.58 The average price in February last year was $32.18. US shale output growth spooked markets.
UK Gilts
- yields moved up. UK Ten year gilt yields closed at 1.38 from 1.19. US
Treasury yields rallied to 2.60 from 2.49. Gold closed at $1,199 from
$1,222.
John
That's all for this week. Don't miss the pro-manchester Business Conference in March. We focus on Digital Disruption and the Smart City Challenge. Sponsors Samsung will be demonstrating the latest in virtual rally, plus we have the latest on robotics, AI and autonomous vehicles.
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