Having already suffered the embarrassment of a Moody’s downgrade this year, and talk of a sterling crisis, the Chancellor arguably has little room for manoeuvre. A further £2.5bn in cuts might appease the ratings agencies, though the pressure will build should GDP falter.
All eyes will be on the OBR’s GDP forecast, and expectations are this will be downgraded to less than 1% growth for 2013.
“The concern is that GDP will decline further in Q1 2013, heralding the so-called ‘triple dip’, rather than registering the OBR’s projected quarterly increase of 0.3%,” says Ruth Lea, economic adviser to Arbuthnot.
“Certainly the omens are not encouraging. January’s industrial production figure (15.5% of GDP) showed a disappointing 1.2% monthly fall and January’s retail sales slipped back by 0.6%.”
Mixed PMI results
From the economist’s point of view, key Markit surveys have offered mixed results. While the services PMI picked up from January to February, the manufacturing PMI turned from expansion to contraction in the same period, while the construction PMI is also on the slide. On the basis of these surveys, and ONS data, Lea’s central case is that the economy remained fairly flat in Q1.
That CPI climbed to 2.8% last month for the first time in five months is another concern, though the figures are understandable given rising energy costs. The Chancellor’s hands may be tied on that one, though his tenure will certainly be judged on his efforts to stimulate growth.
Large-scale infrastructure spend may be a sensible way forward, despite the Trade Union Congress estimating that the extra £2.5bn spend would boost growth by just 0.06%. Labour meanwhile recently called for a programme of housebuilding, possibly funded by proceeds from the 4G network auction.
Infrastructure unhelpful?
Lea points to the Government’s proposals last year to sell off trunk roads and motorways on long leases, which she notes have made little progress.
She opines: “Given the critical state of Britain’s electricity generating capacity, the lack of airport capacity in the South East (kicked into the long grass until after the 2015 election) and the congested road system, such delays in pushing ahead with infrastructural projects are extraordinarily unhelpful in boosting the country’s competitiveness and stimulating growth.”
Lea is with consensus that the Budget is unlikely to herald any major alteration on fiscal strategy. She believes announcements today will be “politically and economically neutral”, but as any driver knows, there’s a big downside to being stuck in neutral.
