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AUTUMN STATEMENT

AUTUMN STATEMENT – COMMON SENSE SUPPORT FOR BUSINESS AND THE UK NATIONAL INTEREST!
By Howard Wheeldon, Senior Strategist at BGC Partners

29 Nov 11. That absolutely no change of course has been signalled by the Chancellor of Exchequer was to me the best part of the 2011 Autumn Statement. In a very well delivered speech from George Osborne he showed not only an intent to do whatever he could for industry and commerce, that he had listened to what others had said and also that he was absolutely determined to ensure that everything the government does from here on would be in the UK national interest. Apart from the unfortunate raising of the bank levy this was a very good Autumn Statement, one that despite the increase in the bank levy was made all the better by hearing the Chancellor take the knife out to ideas of a transaction tax!

While much of what we heard from the Chancellor in the second half of his speech was music to the ears suffice to say that on the wider macro-economic element we still believe that downward revisions on growth expectation for 2011 and 2012 (to 0.9% and 0.7% respectively) look somewhat ‘conservative’. Note that the OBR now says that for the period 32011 to 2017 it expects 710,000 public sector jobs to go (this time last year the OBR downwardly revised forecasts of public sector job loss expectation to 303,000 from a previous 490,000!). Whilst we also note that OBR anticipates market sector employment to rise by around 1.7m over the same period we remain somewhat cautious of official forecasts suggesting growth in GDP of 2.1%, 2.7% and 3% respectively for the years 2013/14/15. Leaving UK specific aside our view is that such figures hardly stack up given the ever worsening prospects for the Eurozone economy and the natural follow through of that negative effect back here.

Back on the wholesale Autumn Statement on the deficit reduction plan we note that the Chancellor has now agreed with the general consensus of external economic forecasts that the official targets announced a year ago would be missed.

New forecasts suggest that the government now believes structural deficit for 2015/16 will now be £53bn as opposed to an original hope of this being down to just £6bn. Mr. Osborne also confirmed OBR forecasts on debt reduction show that five year borrowing requirements would mean debt peaking at 78% of GDP in 2015/16 by which time the UK would, we suspect, have accumulated a debt mountain close to £1.4 trillion. The revised (PSBR) debt requirement for 2011/12 will be £127bn and from there the requirement declines in subsequent periods to £120bn, £100bn, £79bn and £53bn. While economists will take some time to review and digest the latest revisions to growth and structural debt forecast we do not see any reason for sentiment change by markets that the UK plan remains anything other than very sound – particularly compared to many of its EU peers!

While the timing of the announcement to hold public sector pay and pensions to a 1% cap through the 2013 period plus the intention to raise the state retirement age to 67 faster than originally intended does not augur well for the one day civil service strike tomorrow this is a sensible move on the part of the Chancellor. On the plus side he has also left the annual rise of pensions in line with September CPI inflation meaning that pensioners will receive a rise of 5.2% in January next year.

Of all the tax raising measures announced today form a ‘city’ perspective the announcement related to raising the current banking levy from January next year by what amounts to almost 10% so that £2.5bn annual receipts to government can be maintained will go down like a hole in the head.

That the chancellor delayed planned implementation of the 3p rise in fuel duties due to kick in from January next year to August 2012 will be welcomed although we are somewhat neutral in supporting any reasoning behind this. However the significant additional suppo

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