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Bank of England leaves interest rates on hold, but chief economist pushes for a rise - business live Pound rallies after Bank of England is split on interest rates - business live
(about 3 hours later)
Hello again. The pound has continued to climb, on the back of the news that three Bank of England policymakers pushed to raise interest rates at this week’s meeting.
Sterling has now risen to $1.325, up three quarters of a cent today.
That has pulled down shares in London, though (as a stronger currency erodes the value of overseas earnings).
Stock markets have also been hit by another bout of trade war jitters.
Britain’s FTSE 100 shed 70 points, or nearly 1%, to 7556. That’s its lowest level since early May.
In Germany, the Dax shed 1.5%, dragged down by automobile stocks following Daimler’s profits warning.
David Madden of CMC Markets says:
Equity markets are lower as dealers are worried about the global trade situation. The standoff between the US and China is not any closer to being resolved, and traders are fearful President Trump will turn up the heat on the EU next.
Time for a recap.Time for a recap.
The Bank of England has voted to leave interest rates unchanged at 0.5%. But three policymakers, including chief economist Andy Haldane, pushed for rates to rise to 0.75%.The Bank of England has voted to leave interest rates unchanged at 0.5%. But three policymakers, including chief economist Andy Haldane, pushed for rates to rise to 0.75%.
The split vote raises the chances that interest rates are hiked in August. Some experts aren’t convinced, though, and believe borrowing costs could remain unchanged for longer.The split vote raises the chances that interest rates are hiked in August. Some experts aren’t convinced, though, and believe borrowing costs could remain unchanged for longer.
The pound jumped following the announcement, rising from a 7-month low to reach $1.325.The pound jumped following the announcement, rising from a 7-month low to reach $1.325.
The Bank of England also changed its guidance on quantitative easing. It now expects to start unwinding its bond-buying programme once interest rates have hit 1.5%, down from a previous goal of 2%.The Bank of England also changed its guidance on quantitative easing. It now expects to start unwinding its bond-buying programme once interest rates have hit 1.5%, down from a previous goal of 2%.
Britain’s public finances have improved, thanks to a rise in tax receipts. The UK borrowed £5bn to balance the books in May, the smallest amount in over a decade.Britain’s public finances have improved, thanks to a rise in tax receipts. The UK borrowed £5bn to balance the books in May, the smallest amount in over a decade.
Economists say the government has more flexibility to relax austerity. With borrowing below forecast, Philip Hammond has the firepower to increase spending on the NHS.Economists say the government has more flexibility to relax austerity. With borrowing below forecast, Philip Hammond has the firepower to increase spending on the NHS.
Eurozone finance ministers are meeting to discuss Greece. The Eurogroup will consider how Athens will complete its bailout this summer, and what measures are needed to help it return to the financial markets.Eurozone finance ministers are meeting to discuss Greece. The Eurogroup will consider how Athens will complete its bailout this summer, and what measures are needed to help it return to the financial markets.
I’ll be back later when we have developments on Greece...I’ll be back later when we have developments on Greece...
Shares in Europe’s carmakers are sliding after Germany’s Daimler issued a profits warning, and blamed Donald Trump’s trade disputes.Shares in Europe’s carmakers are sliding after Germany’s Daimler issued a profits warning, and blamed Donald Trump’s trade disputes.
Daimler warned that profits would be “slightly below the previous year’s level”, and blamed the prospect of higher tariffs on US cars sold into China (Daimler has a factory in America making SUVs).Daimler warned that profits would be “slightly below the previous year’s level”, and blamed the prospect of higher tariffs on US cars sold into China (Daimler has a factory in America making SUVs).
Daimler shares have fallen 4%, with Fiat (-3.5%), Volkswagen (-3.2%) and BMW (-2.75%) also dragged down.Daimler shares have fallen 4%, with Fiat (-3.5%), Volkswagen (-3.2%) and BMW (-2.75%) also dragged down.
In other news, the boss of Intel - Brian Krzanich - is resigning after conducting a relationship with an employee.In other news, the boss of Intel - Brian Krzanich - is resigning after conducting a relationship with an employee.
Although the relationship was consensual, it breached the chipmaker’s ‘no fraternisation’ policy.Although the relationship was consensual, it breached the chipmaker’s ‘no fraternisation’ policy.
Hannah Maundrell, Editor in Chief of money.co.uk, has some advice for savers and borrowers:Hannah Maundrell, Editor in Chief of money.co.uk, has some advice for savers and borrowers:
“Once again you can breathe a sigh of relief if you’re on a variable rate mortgage; the Bank of England just bought you some time to get a cheaper, fixed deal sorted. You’re not out of the woods yet though. With a rate rise still expected soon the clock is ticking loudly at you especially as the vote was split this month. Check if you’re on a variable deal and speak to a decent mortgage broker about your options if so. It’s likely you’ll save a significant chunk of cash which I’m sure you could better spend elsewhere.“Once again you can breathe a sigh of relief if you’re on a variable rate mortgage; the Bank of England just bought you some time to get a cheaper, fixed deal sorted. You’re not out of the woods yet though. With a rate rise still expected soon the clock is ticking loudly at you especially as the vote was split this month. Check if you’re on a variable deal and speak to a decent mortgage broker about your options if so. It’s likely you’ll save a significant chunk of cash which I’m sure you could better spend elsewhere.
“If your fixed mortgage ends in the next 6 months consider prebooking a mortgage now too as it can help you to lock in a lower rate.“If your fixed mortgage ends in the next 6 months consider prebooking a mortgage now too as it can help you to lock in a lower rate.
“Savers, don’t bank on a rate increase to make things better; banks are notoriously slow to pass on any rises so it’s best to take matters into your own hands. Aim to get your return as close to inflation as possible, and beat it if you can. While this is still a challenge, now inflation has tapered slightly and rates topping best buy tables are slowly started to creep up, the situation isn’t quite as dire as it was.“Savers, don’t bank on a rate increase to make things better; banks are notoriously slow to pass on any rises so it’s best to take matters into your own hands. Aim to get your return as close to inflation as possible, and beat it if you can. While this is still a challenge, now inflation has tapered slightly and rates topping best buy tables are slowly started to creep up, the situation isn’t quite as dire as it was.
Via Kallum Pickering of Berenberg, here’s a handy chart showing how the odds of an August rate hike have jumped to over 60% today:Via Kallum Pickering of Berenberg, here’s a handy chart showing how the odds of an August rate hike have jumped to over 60% today:
Pickering says Haldane’s vote has made City economists change their forecasts:Pickering says Haldane’s vote has made City economists change their forecasts:
Today’s surprise vote for a rate hike by the Bank of England’s chief economist Andy Haldane shifts the balance of probability for the next hike to the August meeting.Today’s surprise vote for a rate hike by the Bank of England’s chief economist Andy Haldane shifts the balance of probability for the next hike to the August meeting.
Previously we had called for a November hike, with a risk of a potential move in August already. However, the minutes from the June meeting show that, despite heightened uncertainty about the global economy linked to trade tensions, the Monetary Policy Committee (MPC) is confident that growth has rebounded to around its trend rate in Q2 (c0.4% qoq) after a soft patch in Q1.Previously we had called for a November hike, with a risk of a potential move in August already. However, the minutes from the June meeting show that, despite heightened uncertainty about the global economy linked to trade tensions, the Monetary Policy Committee (MPC) is confident that growth has rebounded to around its trend rate in Q2 (c0.4% qoq) after a soft patch in Q1.
Foreign exchange dealer Argentex suggests the next UK interest rate rise might come in the autumn, not his summer.Foreign exchange dealer Argentex suggests the next UK interest rate rise might come in the autumn, not his summer.
But it all depends on whether growth picks up, after slowing to just 0.1% in January-March.But it all depends on whether growth picks up, after slowing to just 0.1% in January-March.
An August move is still possibly too soon, but November is now far more realistic. We remain optimistic of a sterling recovery, aside from the ongoing political risks, we are moving closer to monetary tightening.An August move is still possibly too soon, but November is now far more realistic. We remain optimistic of a sterling recovery, aside from the ongoing political risks, we are moving closer to monetary tightening.
We’ll need to see stronger economic fundamentals in the short-term. If the shaky first quarter was just an blip then the MPC is likely to act.”We’ll need to see stronger economic fundamentals in the short-term. If the shaky first quarter was just an blip then the MPC is likely to act.”
A new Brexit crisis could derail the Bank of England from raising interest rates in August, despite Haldane’s hawkish conversion.A new Brexit crisis could derail the Bank of England from raising interest rates in August, despite Haldane’s hawkish conversion.
Silvia Dall’Angelo, senior economist at Hermes Investment Management, explains:Silvia Dall’Angelo, senior economist at Hermes Investment Management, explains:
The Bank seems determined to deliver one more hike in the second half of the year, justified by a tight labour market and an economy now working close to potential.The Bank seems determined to deliver one more hike in the second half of the year, justified by a tight labour market and an economy now working close to potential.
However, there are several reasons to err on the side of caution. In particular, recent hard data on industrial production and surveys on economic activity suggest that the prospects of a significant rebound in economic performance are uncertain following a weak Q1. Moreover, risks of a disruptive Brexit event down the road are still high.However, there are several reasons to err on the side of caution. In particular, recent hard data on industrial production and surveys on economic activity suggest that the prospects of a significant rebound in economic performance are uncertain following a weak Q1. Moreover, risks of a disruptive Brexit event down the road are still high.
Negotiations have stalled in recent months reflecting unresolved divisions within the UK Cabinet, and the upcoming EU council at the end of June is unlikely to deliver any progress, as other issues (not least international trade tensions) are now topping the EU leaders’ agenda.Negotiations have stalled in recent months reflecting unresolved divisions within the UK Cabinet, and the upcoming EU council at the end of June is unlikely to deliver any progress, as other issues (not least international trade tensions) are now topping the EU leaders’ agenda.
City economist Sam Tombs of Pantheon has spotted that the pound started to rally just before the Bank’s decision was published.City economist Sam Tombs of Pantheon has spotted that the pound started to rally just before the Bank’s decision was published.
Sterling was trading at $1.310 at 11.50am, but had snuck over $1.313 by 11.59am:Sterling was trading at $1.310 at 11.50am, but had snuck over $1.313 by 11.59am:
That's quite a suspicious appreciation of sterling prior to the MPC's 12pm decision, if you ask me. Was Haldane's vote switch leaked? pic.twitter.com/h4TZCBpKilThat's quite a suspicious appreciation of sterling prior to the MPC's 12pm decision, if you ask me. Was Haldane's vote switch leaked? pic.twitter.com/h4TZCBpKil
The Bank actually held its meeting yesterday, and keeps its decision tightly under wraps until the official announcement. But was it tight enough?...The Bank actually held its meeting yesterday, and keeps its decision tightly under wraps until the official announcement. But was it tight enough?...
Another development: the Bank of England has changed its guidance about when it might start unwinding its quantitative easing (QE) stimulus programme.Another development: the Bank of England has changed its guidance about when it might start unwinding its quantitative easing (QE) stimulus programme.
The Bank currently holds £435bn of bonds bought through QE using newly-created electronic money.The Bank currently holds £435bn of bonds bought through QE using newly-created electronic money.
It has now decided it could start to sell some of these bonds when interest rates have risen to 1.5% (compared to 0.5% today). It had previously aimed for 2%.It has now decided it could start to sell some of these bonds when interest rates have risen to 1.5% (compared to 0.5% today). It had previously aimed for 2%.
Neil Wilson of Markets.com thinks this shows the Bank doesn’t expect rates to hit 2% for a long time.Neil Wilson of Markets.com thinks this shows the Bank doesn’t expect rates to hit 2% for a long time.
A lower bar but whether 1.5% or 2% - neither are going to happen any time soon, so this is of marginal relevance to investors right now. It’s indeed probably an admission it doesn’t see rates hitting 2% for a very long time indeed, while 1.5% is a bit more achievable.”A lower bar but whether 1.5% or 2% - neither are going to happen any time soon, so this is of marginal relevance to investors right now. It’s indeed probably an admission it doesn’t see rates hitting 2% for a very long time indeed, while 1.5% is a bit more achievable.”
Neil Birrell, Chief Investment Officer at Premier Asset Management, agrees:Neil Birrell, Chief Investment Officer at Premier Asset Management, agrees:
Another significant change was in QE guidance; the bank won’t consider reducing the debt purchased until the rate reaches 1.5%, down from 2%. This suggests that they now think rates will have a lower peak this cycle than previously expected.Another significant change was in QE guidance; the bank won’t consider reducing the debt purchased until the rate reaches 1.5%, down from 2%. This suggests that they now think rates will have a lower peak this cycle than previously expected.
“This is mixed news for markets. In the short term, it’s a positive for Sterling and we may see gilt yields rise modestly, but the outlook is still unclear, as is the message from the bank.”“This is mixed news for markets. In the short term, it’s a positive for Sterling and we may see gilt yields rise modestly, but the outlook is still unclear, as is the message from the bank.”
Andy Haldane’s transformation to an interest rate hawk means there is more chance of an interest rate rise in August, says Craig Erlam of trading firm OANDA.Andy Haldane’s transformation to an interest rate hawk means there is more chance of an interest rate rise in August, says Craig Erlam of trading firm OANDA.
Prior to today’s meeting, investors were unconvinced by the prospect of a rate hike in August but I think today’s release will change that. Sterling rallied above 1.32 against the dollar from just above 1.31 prior to the release which suggests people’s expectations for August are being quickly revised.Prior to today’s meeting, investors were unconvinced by the prospect of a rate hike in August but I think today’s release will change that. Sterling rallied above 1.32 against the dollar from just above 1.31 prior to the release which suggests people’s expectations for August are being quickly revised.
While a hike in November makes more sense as there’ll be more clarity – hopefully – by then, I wouldn’t be surprised if they go in August given the criticism they endured for holding off in May.While a hike in November makes more sense as there’ll be more clarity – hopefully – by then, I wouldn’t be surprised if they go in August given the criticism they endured for holding off in May.
The Bank’s official position is that it expects that “an ongoing tightening of monetary policy” will be appropriate over the next couple of years, if the economy performs as expected.The Bank’s official position is that it expects that “an ongoing tightening of monetary policy” will be appropriate over the next couple of years, if the economy performs as expected.
Economics journalist Dharshini David points out that this isn’t a concrete promise to raise rates soonEconomics journalist Dharshini David points out that this isn’t a concrete promise to raise rates soon
While market's reading of 1 more MPC member voting for hike is that Aug rate rise more likely, BoE keeping options open, notably using exact same vague line ("an ongoing tightening of monetary policy over the forecast period would be appropriate" ) as last meetingWhile market's reading of 1 more MPC member voting for hike is that Aug rate rise more likely, BoE keeping options open, notably using exact same vague line ("an ongoing tightening of monetary policy over the forecast period would be appropriate" ) as last meeting
Today’s 6-3 split is a surprise, says Ben Brettell, senior economist at Hargreaves Lansdown:Today’s 6-3 split is a surprise, says Ben Brettell, senior economist at Hargreaves Lansdown:
But that doesn’t mean that interest rates will definitely rise in August, he adds:But that doesn’t mean that interest rates will definitely rise in August, he adds:
There was a small element of surprise in the voting, with the Bank’s chief economist Andy Haldane joining Michael Saunders and perma-hawk Ian McCafferty in calling for an immediate rate rise. Economists had expected a 7-2 split, but in the event a forecast uptick in inflation was enough to split the committee 6-3.There was a small element of surprise in the voting, with the Bank’s chief economist Andy Haldane joining Michael Saunders and perma-hawk Ian McCafferty in calling for an immediate rate rise. Economists had expected a 7-2 split, but in the event a forecast uptick in inflation was enough to split the committee 6-3.
Sterling jumped on the news, gaining almost a cent against the dollar as traders factored in a bigger chance of a move in August. But on balance I still think we might not see a rate rise for the rest of the year - policymakers will at the very least want confirmation that the weak first-quarter growth figure was just a blip before raising borrowing costs.Sterling jumped on the news, gaining almost a cent against the dollar as traders factored in a bigger chance of a move in August. But on balance I still think we might not see a rate rise for the rest of the year - policymakers will at the very least want confirmation that the weak first-quarter growth figure was just a blip before raising borrowing costs.
There is clearly a split at the Bank of England over the state of the British economy.There is clearly a split at the Bank of England over the state of the British economy.
The minutes of today’s meeting show that six members believe the UK economy isn’t strong enough to handle higher interest rates, especially with the global economy looking shakier.The minutes of today’s meeting show that six members believe the UK economy isn’t strong enough to handle higher interest rates, especially with the global economy looking shakier.
Those members are governor Mark Carney, deputy governors Ben Broadbent, Jon Cunliffe and Dave Ramsden, and external committee members Silvana Tenreyro and Gertjan Vlieghe.Those members are governor Mark Carney, deputy governors Ben Broadbent, Jon Cunliffe and Dave Ramsden, and external committee members Silvana Tenreyro and Gertjan Vlieghe.
As the minutes put it:As the minutes put it:
For the majority of members, an increase in Bank Rate at this meeting was not required. For these members, the news since the previous meeting had given them greater reassurance that the softness of activity in the first quarter had been largely temporary. In particular, indicators of household consumption had recovered strongly from their subdued levels at the time of the previous meeting.For the majority of members, an increase in Bank Rate at this meeting was not required. For these members, the news since the previous meeting had given them greater reassurance that the softness of activity in the first quarter had been largely temporary. In particular, indicators of household consumption had recovered strongly from their subdued levels at the time of the previous meeting.
Set against that, the outlook for global growth had weakened somewhat, and global financial conditions had tightened, with some modest impact on UK bank funding and corporate credit spreads. Data on manufacturing output and goods exports in April had been weak, although business surveys had generally suggested steady underlying GDP growth. For these members, there was value in seeing how the data evolved from here, in order to learn more about the extent to which conditions were evolving in line with the May Inflation Report projections.Set against that, the outlook for global growth had weakened somewhat, and global financial conditions had tightened, with some modest impact on UK bank funding and corporate credit spreads. Data on manufacturing output and goods exports in April had been weak, although business surveys had generally suggested steady underlying GDP growth. For these members, there was value in seeing how the data evolved from here, in order to learn more about the extent to which conditions were evolving in line with the May Inflation Report projections.
But chief economist Andy Haldane disagreed! Along with external members Ian McCafferty and Michael Saunders, Haldane argued that the economy was healthy, and that growth was bouncing back from the winter slowdown.But chief economist Andy Haldane disagreed! Along with external members Ian McCafferty and Michael Saunders, Haldane argued that the economy was healthy, and that growth was bouncing back from the winter slowdown.
The minute say that this trio pushed for higher borrowing costs, to avoid a spike in inflation.The minute say that this trio pushed for higher borrowing costs, to avoid a spike in inflation.
Three members favoured an immediate increase in Bank Rate. These members had a higher degree of confidence that the slowdown in Q1 was temporary or erratic and would largely be unwound.Three members favoured an immediate increase in Bank Rate. These members had a higher degree of confidence that the slowdown in Q1 was temporary or erratic and would largely be unwound.
They felt that the economy was developing broadly in line with the May Inflation Report forecasts, but the most recent indicators of labour demand and pay settlements indicated some upside risks to the expected pickup in average weekly earnings and unit wage costs. These members also felt that the benefits of waiting for additional information were limited.They felt that the economy was developing broadly in line with the May Inflation Report forecasts, but the most recent indicators of labour demand and pay settlements indicated some upside risks to the expected pickup in average weekly earnings and unit wage costs. These members also felt that the benefits of waiting for additional information were limited.
Rather, they judged that a modest tightening of monetary policy at this meeting could mitigate the risks of a more sustained period of above-target inflation that might ultimately necessitate a less gradual subsequent change in policy and hence a sharper adjustment in growth and employment.Rather, they judged that a modest tightening of monetary policy at this meeting could mitigate the risks of a more sustained period of above-target inflation that might ultimately necessitate a less gradual subsequent change in policy and hence a sharper adjustment in growth and employment.
You can read the minutes online here.You can read the minutes online here.
The pound is rallying, following the news that three Bank of England policymakers voted to raise interest rates today.The pound is rallying, following the news that three Bank of England policymakers voted to raise interest rates today.
Chief economist Andy Haldane’s conversion to a hawk makes an August interest rate rise more likely, City traders believe.Chief economist Andy Haldane’s conversion to a hawk makes an August interest rate rise more likely, City traders believe.
This has sent sterling back up to $1.32, away from this morning’s seven-month low.This has sent sterling back up to $1.32, away from this morning’s seven-month low.
The Haldane spike. No change from the BOE, but it's an unexpected 6-3 split. Roll on August https://t.co/SnfJiVCxuC via @economics pic.twitter.com/M1mO9tAxcnThe Haldane spike. No change from the BOE, but it's an unexpected 6-3 split. Roll on August https://t.co/SnfJiVCxuC via @economics pic.twitter.com/M1mO9tAxcn
Newsflash: The Bank of England has voted to leave interest rates at 0.5%.Newsflash: The Bank of England has voted to leave interest rates at 0.5%.
But it’s a split vote! The Bak’s chief economist Andy Haldane voted to raise borrowing costs to 0.75%, along with Ian McCafferty and Michael Saunders.But it’s a split vote! The Bak’s chief economist Andy Haldane voted to raise borrowing costs to 0.75%, along with Ian McCafferty and Michael Saunders.
The remaining six members of the MPC voted to leave rates on hold, though.The remaining six members of the MPC voted to leave rates on hold, though.
More to follow!More to follow!
The pound is weakening, as the City braces for the Bank of England’s decision on interest rates at noon.The pound is weakening, as the City braces for the Bank of England’s decision on interest rates at noon.
Sterling has fallen by 0.3% today to $1.313 against the US dollar. That’s its lowest level this year.Sterling has fallen by 0.3% today to $1.313 against the US dollar. That’s its lowest level this year.
Over in Europe, the eurozone’s bailout fund has warned that Greece still faces major “challenges” before it can end its bailout programme this summerOver in Europe, the eurozone’s bailout fund has warned that Greece still faces major “challenges” before it can end its bailout programme this summer
That’s an important point, as eurozone ministers gather to discuss Greece’s financial future this afternoon.That’s an important point, as eurozone ministers gather to discuss Greece’s financial future this afternoon.
Helena Smith reports from AthensHelena Smith reports from Athens
“Greece has made significant progress in stabilising its economy,” the European Stability Mechanism said in its 2017 annual report.“Greece has made significant progress in stabilising its economy,” the European Stability Mechanism said in its 2017 annual report.
“Continuing on this path is decisive for the sovereign to regain stable market access. […]“Continuing on this path is decisive for the sovereign to regain stable market access. […]
Despite strengthened market confidence, the Greek economy faces a difficult economic and financial environment. Greece must address remaining challenges before the programme concludes to ensure that it can build upon its significant programme achievements in the post-programme period.”Despite strengthened market confidence, the Greek economy faces a difficult economic and financial environment. Greece must address remaining challenges before the programme concludes to ensure that it can build upon its significant programme achievements in the post-programme period.”
The assessment echoes similar comments by the ESM’s managing director Klaus Regling in Athens last week.The assessment echoes similar comments by the ESM’s managing director Klaus Regling in Athens last week.
Speaking after holding talks with the Greek finance minister Euclid Tsakalotos, the ESM chief said despite the progress the debt-stricken country had made, it will continue to remain under “tight” surveillance when it exits its current bailout programme in August. Supervision is expected to be strict for several years.Speaking after holding talks with the Greek finance minister Euclid Tsakalotos, the ESM chief said despite the progress the debt-stricken country had made, it will continue to remain under “tight” surveillance when it exits its current bailout programme in August. Supervision is expected to be strict for several years.
“Surveillance will be tight in the case of Greece,” he told reporters adding that while all bailed out euro zone economies were subject to supervision, Athens would be given especially enhanced oversight because of the unprecedented amounts of emergency bailout funding the country had received.“Surveillance will be tight in the case of Greece,” he told reporters adding that while all bailed out euro zone economies were subject to supervision, Athens would be given especially enhanced oversight because of the unprecedented amounts of emergency bailout funding the country had received.
Greece would only be a success story if it continued to implement tough economic reforms, Regling said. If it fails to do so, investor confidence will plummet and the markets will retaliate, he warned.Greece would only be a success story if it continued to implement tough economic reforms, Regling said. If it fails to do so, investor confidence will plummet and the markets will retaliate, he warned.
Excluded from international capital markets, Greece has been dependent on international rescue funds since May 2010 in what has been the biggest bailout of any state in global financial history.Excluded from international capital markets, Greece has been dependent on international rescue funds since May 2010 in what has been the biggest bailout of any state in global financial history.
John Hawksworth, chief economist at PwC, says the drop in UK borrowing will allow the government to relax its austerity policies.John Hawksworth, chief economist at PwC, says the drop in UK borrowing will allow the government to relax its austerity policies.
However, tax rises will still be needed to fund the increase in NHS spending announced this week, he adds:However, tax rises will still be needed to fund the increase in NHS spending announced this week, he adds:
“As a share of GDP, public borrowing in 2017/18 is now estimated to be just 1.9%, the first time the budget deficit has been below 2% of GDP since 2001/2. Since the OBR estimates that the output gap in 2017/18 was close to zero, the structural budget deficit was probably also just below 2% of GDP in that year, meaning that the Chancellor has already met his medium term fiscal target set originally for 2020 with further deficit reductions likely over the next couple of years.“As a share of GDP, public borrowing in 2017/18 is now estimated to be just 1.9%, the first time the budget deficit has been below 2% of GDP since 2001/2. Since the OBR estimates that the output gap in 2017/18 was close to zero, the structural budget deficit was probably also just below 2% of GDP in that year, meaning that the Chancellor has already met his medium term fiscal target set originally for 2020 with further deficit reductions likely over the next couple of years.
“So the Chancellor can afford to ease off on austerity without endangering his medium term fiscal targets. We estimate that, of the proposed £25 billion of real NHS spending rises across the UK by 2023/24, around £10 billion is already implicit in current spending plans used in OBR forecasts. So we estimate that the Chancellor may only need to raise taxes or increase borrowing relative to previous plans by around £15 billion in 2023/24 to fund these plans, which is equivalent to around 0.6% of GDP in that year. A net tax rise of around 0.3% of GDP, plus a modest borrowing rise of a similar magnitude would be enough to fund the additional health spending over and above that implicit in current fiscal projections.“So the Chancellor can afford to ease off on austerity without endangering his medium term fiscal targets. We estimate that, of the proposed £25 billion of real NHS spending rises across the UK by 2023/24, around £10 billion is already implicit in current spending plans used in OBR forecasts. So we estimate that the Chancellor may only need to raise taxes or increase borrowing relative to previous plans by around £15 billion in 2023/24 to fund these plans, which is equivalent to around 0.6% of GDP in that year. A net tax rise of around 0.3% of GDP, plus a modest borrowing rise of a similar magnitude would be enough to fund the additional health spending over and above that implicit in current fiscal projections.