Autumn Budget Statement – Macro view

Still, there were reasons for the Chancellor to be upbeat, as economic forecasts were overall positive, which will no doubt play to the Conservative party’s advantage as it looks to bolster its economic credentials heading into the election. GDP growth figures were revised upwards, now expected to come in at 3.0% for this year and 2.4% next, with a strong employment outlook and subdued inflation. The fly in the ointment is that the Government deficit is likely to be higher than forecast for the next two years, though it falls faster than previously forecast after that, with the deficit set to be eliminated in 2018-19. The apparent conflict between stronger growth but worse deficit comes down to weaker tax receipts. This was widely expected given the recent increases in the personal allowance and reduced revenue from North Sea operations as the oil price has fallen, but the Chancellor believes these were mitigated thanks to lower debt servicing costs as Government bond yields have fallen. Either way, this limited the scope for more radical (and possibly vote-winning) changes. Supportive measures largely focused on additional help for small businesses, promoting growth in the north of England and boosting scientific endeavour. To balance these, the Government took aim at some political bogeymen namely limiting the ability of banks to offset financial crisis losses against profits for tax reasons and forcing multinationals that artificially divert UK-generated profits to pay 25% corporation tax, which a lot of people are calling a ‘Google-tax’.

As expected, with limited ability to push through major changes, and with an eye now firmly on the May elections, there was considerably more politics than economics in this Autumn Statement. That said, what we did hear could easily be taken as a positive – no meddling, and a basic message that the UK continues to be the fastest-growing developed economy, with strong employment and low inflation. Not a terrible position be in.