UK slashes growth forecasts

British Chancellor of the Exchequer Philip Hammond poses for pictures with the Budget Box as he leaves 11 Downing Street in London, on Nov. 22, 2017, before presenting the government’s annual Autumn budget to Parliament. (AFP/Ben Stansall)
Updated 22 November 2017
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UK slashes growth forecasts

LONDON: Britain slashed its growth forecasts for its Brexit-bound economy and expects to borrow a lot more going into the next decade, the country's finance minister said on Wednesday as he delivered a gloomy budget statement in Parliament.
Slower economic growth will mean lower tax revenues for Philip Hammond to spend on the kind of bold moves that many in his Conservative Party — still smarting from an election mauling in June — had demanded.
But Hammond sought to show he could help voters by abolishing a duty for first-time buyers on the purchases of homes worth up to £300,000 ($397,500), keeping a freeze on fuel duty and spending more on the health service.
He also committed £44 billion to provide funding, loans and guarantees over five years in an effort to deliver 300,000 net additional homes per year on average by the mid-2020s, addressing Britain’s acute housing shortage.
Hammond said he had to keep his focus on fixing Britain’s public finances as he steers an economy growing only weakly — even when the global economy is picking up — through a challenging period as it prepares to leave the EU.
“We took over an economy with the highest budget deficit in our peacetime history,” he told Parliament.
“Since then, thanks to the hard work of the British people, that deficit has been shrinking and next year will be below 2 percent. But our debt is still too high,” he said.
But Britain’s official budget watchdog said the spending plans for the next two years were a “significant giveaway” as Hammond sought to cushion the Brexit slowdown.
At a time when inflation has risen sharply and wages have grown only slowly, many voters are increasingly angry about years of spending cuts in many areas of public services, something Hammond acknowledged in his speech.
“We understand the frustration of families where real incomes are under pressure,” he said.
He said that employment was expected to rise, that he would reduce the delays in receiving benefit payments that many families have suffered under changes to the welfare system.
Hammond also sought to help British businesses by slowing the pace of increase in the so-called business rates tax on the premises they occupy, and he raised a tax credit for research and development.
But the limitations on Hammond were clear as he said the war chest he wants to keep in reserve to help the economy had almost halved in size.
He said his so-called “fiscal headroom” — taking into consideration his budget targets — now stood at £14.8 billion, down from the £26 billion expected in March.
Britain’s budget forecasters now expect gross domestic product will grow by 1.5 percent in 2017, compared with a forecast of 2.0 percent made in March, reflecting a slowdown this year as the Brexit vote weighed.
The Office for Budget Responsibility saw growth in 2018 at 1.4 percent, down from its previous forecast of 1.6 percent, Hammond told Parliament.
Its revisions for later years were more acute: GDP growth forecasts in 2019 and 2020 stood at 1.3 percent in both years compared with 1.7 and 1.9 percent respectively seen in March.
“There is a recognition from the OBR that the growth outlook is dire at a time when the world economy is enjoying a synchronized upswing. Germany is enjoying a boom and even Italy is growing faster than the UK,” said Daiwa Capital Markets Europe’s Chris Scicluna.
The OBR had been expected to take a gloomier view after it said in October that it would lower its projections for productivity growth in the years ahead.
By 2021 and 2022, growth was seen picking up only slightly to 1.5 and 1.6 percent respectively.
Many lawmakers had called on Hammond to produce a bold budget to turn around the fortunes of Prime Minister Theresa May who lost her parliamentary majority in a failed election gamble in June, is struggling to make headway in Brexit negotiations with the EU and recently lost two ministers from her Cabinet.
Lower tax revenues and slower growth will add to the challenge of turning Britain’s budget deficit into a surplus by the mid-2020s.
Hammond said the OBR now expected Britain to borrow less this year and in the 2018/19 fiscal year but more in the following years as the slowdown in the economy bites.
Britain is expected to run a budget deficit of 1.3 percent of GDP by the 2021/22 financial year, almost double the previous estimate of 0.7 percent.
Before last year’s Brexit vote, Britain had been aiming to post a budget surplus by the end of this decade, itself a delay from an original target of fixing the public finances by 2015.
There was some better news for the public finances — Britain’s debt was expected to peak at 86.4 percent of GDP this year — about double its level before the global financial crisis — before falling in the coming years.
The OBR budget forecasters said the fall in net debt was largely achieved by the sales of shares in state-run bank RBS and by an accounting switch to get the debt of housing associations off the government’s books.


Oil prices inch up as US crude stocks drop, Iran sanctions weigh

Updated 46 sec ago
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Oil prices inch up as US crude stocks drop, Iran sanctions weigh

  • US crude inventories fell by 5.2 million barrels in the week to August 17 to 405.6 million barrels
  • ‘The Iran issue continues to occupy traders’ minds’

SEOUL: Oil markets rose on Wednesday on a drop in US crude inventories and a weaker dollar, while concerns about a potential shortfall in Iranian supply from November due to US sanctions also buoyed prices.
Brent crude oil futures were at $72.90 per barrel at 0653 GMT, up 27 cents, or 0.37 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were up 27 cents, or 0.41 percent, at $66.11 per barrel.
US crude inventories fell by 5.2 million barrels in the week to Aug. 17 to 405.6 million barrels, ahead of analyst forecasts for a fall of 1.5 million barrels, according to data from industry group the American Petroleum Institute.
Official data from the US Energy Information Administration (EIA) is due at 10:30 a.m. EDT (1430 GMT) on Wednesday.
“Investors are also confident that (official) inventories in the United States will decrease this week,” ANZ Bank said in a note.
Signs of slowing US crude output growth and a weaker US dollar also provided some support to oil prices, said Kim Kwang-rae, commodity analyst at Samsung Futures in Seoul.
The US dollar index against a basket of six major currencies eased on Wednesday to 95.211 after losing 0.7 percent the previous day, weighed down by US President Trump’s comments on monetary policy.
A weaker US dollar makes oil, which is priced in dollars, less expensive for buyers in other currencies.
The EIA cut its 2018 US crude production growth forecast on Aug. 7 to 10.68 million barrels per day (bpd) from 10.79 million bpd amid lower crude prices.
Concerns also remain over how much oil will be removed from global markets by renewed sanctions on Iran, despite worries that demand-growth could weaken amid a trade dispute between the United States and China, the world’s two biggest economies.
“The Iran issue continues to occupy traders’ minds,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC) and OPEC’s third-largest oil producer, said earlier this week no other OPEC member should be allowed to take over its share of oil exports.
Meanwhile, a Chinese trade delegation is in Washington to discuss the trade dispute with the US side. But signs of a thaw were unlikely as US President Donald Trump told Reuters in an interview on Monday that he did not expect much progress.