What to take from Chancellor Osborne’s Autumn Statement

This morning the Chancellor George Osborne presented his Autumn statement and emphasised that the “economic plan is working but the job is not done”. The chancellor highlighted the impressive improvements in growth, unemployment, inflation pressures and forecasts which suggest these developments will continue. The key points are below:

UK Growth

• The Office of Budget Responsibility (OBR) now project growth this year will be 1.4%, raised from an expected 0.6% in March. 
• Next year’s forecast has also been revised upwards to 2.4% from 1.8%, with the following four years growth expected to be 2.2%, 2.6% 2.7% and 2.7%. 
• The OBR have shed light on the risks to growth, claiming the eurozone will shrink 0.4% this year. 
• Unemployment is expected to fall to 7% in 2015 and 5.6% by 2018, with an expected 400k additional jobs. 
• Private sector job creation will reach 3.1m by 2019 according to estimates. 

Public Finances 

• OBR have revised underlying public sector net borrowing down to 6.8% down from 7.5%, dropping to 5.6% next year, and predicts a small budget surplus by 2018. 
• The Borrowing forecast is down by £73bn in the next few years, with an estimated £111bn being borrowed this year and £96bn next year. 
• The chancellor has introduced a cap on welfare spending, however this excludes pensions. 
• There will be an updated charter of budget responsibility to be presented to the parliament next year. 
• Pensions will rise by £2.95 a week from next April, and the state pension age will rise to 68 in the mid-2030s, up to 69 in the mid-2040s. 

Taxes

• From 2015 capital gains tax on home purchases/sales from non-residence will be introduced. 
• The Bank Levy will increase to 0.156%, raising an additional £2.7bn next year and £2.9bn a year for 2015-16. 
• There will be further tax breaks for shale gas, with the tax rate being halved on early profits. 
• Up to £1000 tax allowance will be transferable between married couples. 
• Jobs tax to be abolished for people aged under 21. 

Businesses

• Rate relief scheme for small business will be extended for another year. 
• There will be a cap increase on business rates at 2% from next year. 

Living standards

• The freeze on fuel duty will continue, meaning next year’s planned rise will be cancelled. 
• Green levies on energy bills will be rolled back, therefore cutting £50 from bill increases. 
• Average rail prices will be kept constant in real terms.

Sasha Nugent

Currency Analyst

Caxton FX

Sterling holds steady as UK growth forecasts are revised

The newly established Office for Budget Responsibility (OBR) announced a downgrade of potential economic growth in 2011, within their inaugural report released this morning.

Back in March this year, the Labour government had forecast growth of between 3.0 – 3.5% next year. The OBR now predicts that the economy will expand by just 2.6% and have revised down their growth forecast for this year, with an estimate of just 1.3%, against the former Chancellor Alistair Darling’s original estimate of 3.0%.

Duncan Higgins, senior analyst at Caxton FX commented, “The reaction in the market has not been too pronounced with the market widely expecting a downward revision. The figures are reflective of the upcoming budget cuts, which are likely to weigh on economic activity for some time.”

The OBR also gave a renewed forecast of the UK’s public deficit, estimating that it will fall to 10.5% of GDP in the 2010-11 financial year, down from Labour’s 11.1% estimate.

“The lower deficit forecast is certainly a positive, but the market is waiting to see exactly where the cuts will fall before reacting. Sterling has crept higher against the dollar in the wake of the report, but direction is still largely being dictated by movements in the equity markets,” continues Higgins.

At present the pound is trading back near a one-month high against the US currency, back above $1.47. Against the euro, the pound is holding station just above €1.20.