The Banking and Strategy Initiative

Chillin' out till it needs to be funded

London, London! Did you meet Cutts the Butcher? (UK Budget 2012)

Update: The Speech mentions a 7% deficit target for 2016 from 12% last year and a debt of GBP 98 bln in 2012/13 to 21 bln in 2015/16 as the main featues of the new budget. The Corp rate will be immediately cut to 24% and go to 22% in the next two years. The young employed were not benefitted while the Olympics, Local Transport Systems and an Airport for the South East got Central attention. The Pension entitlements were cut as expected and the Top Personal rate cut from 50p to 45p in 2012/13

It seems though that Cutts the Butcher could almost be the affable Mr Chips listening to his constituents and administering banks with a light hand while firm and responsible with the budget. Among the “goodies” planned in this budget which needs to feed the 24% Business expectations number on the back of an evenly disappointing series of production statistics, except for real sales in London, esp at Oxford Street and Bond Street.

His plans to cut the Tax rate at the top from 50% to 40% is a welcome move and he would also be adding a GBP 1000 Pounds exemption in the lower limit, netting a loss of near GBP 5 bln for the exchequer. Not only is the option for a tycoon tax on expensive houses tuned politically but UK remains the only sovereign displaying the temerity to fiddle with its pensions, a holy cow bigger than the Hindu sacred animal in the US, Russia and many other legislations. Of course, most economic observers feel it’s anything goes in the Pensions sector, this time a withdrawal of tax relief.

The government is on the edge of the precipice in terms of leverage and liquidity to maintaina  AAA as all  rating agencies posted a negative outlook on ratings, the latest Fitch mentioning the fiscal deficit was unlikely to come back into balance even as the government reduced its public spending just enough to keep the rating and yet needs GBP 158 bln more because of the slow growth till 2015. The current OBR document sees a Debt to GDP ratio reaching 78% by 2014. the Moodys’ cut on outlook in February was welcomed by the Chancellor and used as an opportunity to further cut public borrowing and spending cuts will remain the highlight of the budget tonight

Experts do not expect a balanced budget even by 2016-17 though many expect the Debt to GDP ratio to fall and OBR to revise the annual document which used the borderline ratios of Debt for 2014-15 and Moodys’ and Fitch issued negative outlooks since the OBR study last month.

Th egrowth deficit again puts into question whether sausterity is actually tightening the screws on growth while UK and even German ya nd France yet do no thave the space to borrow and grow the economies, relying on often random cuts of siable proportions esp in today’s UK budget likely to keep the elections in mind. All said and Done however, the statistical consistency and accuracy of Developed budgets targets in Germany and UK is much higher than anywhere else in the world and even in France, Ireland and other West European principalities, thoguhwith no growth equation of note has emerged from the se few sovereigns in the last two decades.

Rating agencies again removed any room for maneuvering the fiscal deficit/spend even as George “Cutts” Osborne snips away at Expense heads, and becomes an unlikely hero if his gambit of reducing entitlements with or without notable pension reform actually works to growth esp with th e South East coming back in recovering realty prices and Public employment is encouraged to drive the unemployment down in rest of England. The Chancellor will find it easy to push forward the date for scrapping national pay rates for the public sector. Fuel tax is yet to be increased , pending since January as Child Benefits are likely withdrawn for incomes over GBP 43,000 and a GAAR anti abuse covenant will allow the government to penalize tax avoidance measures like transferring property offshore. The Independent also mentions a focus on the youth in ages 16-24 whose number has grown to more than 1 million at last count.

Also, there is the target to raise the tax threshold to GBP 10000 by 2014. CPI has risen by 0.6p and 0.7 p in the last two months at 3.4% even as BoE has sunk GBP 325 bln into stimulus spending to maintain liquidity and engender business lending and growth. Meanwhile the Global Financial Centres Index last week repoted a #1 rank for London ahead of United States (New York) and Hongkong ahead of falling comfort levels for Shanghai, Shenzhen and Beijing in the toughest year of them all.

The chancellor followed Chinese Yuan swaps with its major trading partners with a deal signed with Hongkong to enable Remnimbi trading in London esp the Dim sum bonds from Global companies raising Capital in China/Yuan. FDI from China will be a new factor int he growth mix for London as a center and UK as a AAA rated sovereign.

The Telegraph mentions the shifting outof the Royal Mail pension scheme saving the deficit figures in 2012/13 and UK stares at  much larger deficits in 2013-15. OBR is likely to upwardly revise its growth from 0.3% The boost fromt he Olympics will balance the Queens’ Day weekend in the second quarter. According to  HSBC Economist Simon Wells, OBR’s current rend forecast is overoptimistic on the potential growth later, a key risk being monitored by the rating agencies

The UK debt schedules are among the highest in the world at 500% incl Corp Debt and apparently a more than 23% of available income of each household goes in interest payments.




Enhanced by Zemanta

One comment on “London, London! Did you meet Cutts the Butcher? (UK Budget 2012)

  1. Pingback: US Economy: A 13 bp rise in retail Home loan rates hurt!!! | The Banking and Strategy Initiative

Comments are closed.


%d bloggers like this: