Cloudy Picture for UK…….
The intertwining of sport and finance (rightly or wrongly) has been a keenly contested subject ever since the inception of the Premier League back in 1992. And, if it continues to provide more sporting analogies as a framework within which to discuss the vagaries of global economics and foreign exchange markets, then long may it continue in the eye of this author. The longer-sighted of the journalistic world will view the (seemingly) concluded departure of Wayne Rooney from Manchester United as symptomatic of a great institution that has become a ‘selling’ club, ever more burdened by the gargantuan debt on its shoulders. And what a perfect comparison as George Osborne will be spending the day doing a mighty fine impression of that with the nation’s finances. Today’s Comprehensive Spending Review will essentially add some more detail to the comprehensive spending cuts announced in June’s emergency budget. With the Budget having outlined the tax measures behind the fiscal consolidation, the CSR is all about how to allocate government spending across government departments and programmes to bring the rise in Total Managed Expenditure in line with the Budget plans. As such, provided the plans as outlined are credible and do not overly rely on outlandish claims of efficiency gains, it is hard to see (for all the fanfare) there being a great deal of market reaction per se. Indeed, this is a bigger event on the political scene than the economic one. But nonetheless the CSR does herald a development in the political cycle that in time may feed-back onto the market’s perception of the UK. A CSR that ushers in a long period of government unpopularity could worry the market in time, particularly if the opposition is arguing for a less ambitious degree of fiscal consolidation.
As for yesterday, last night’s speech by Bank of England Governor Mervyn King was hardly conclusive for those looking for an extension in Quantitative Easing, especially at the next MPC meeting. The Governor noted that some measures of inflation are ‘extremely subdued’ but also that ‘..the continuing high level of inflation poses the risk that inflation expectations may move up’. An extension of QE in the UK very much remains a possibility, rather than a probability. The minutes of October’s MPC meeting, released a few minutes ago, doesn’t exactly make the picture any clearer. It seems there was a 3 way split of sorts, with Posen as expected voting for an additional £50bn of QE, and Sentance, as expected, voting for a 0.25% rate rise.
Today the PNSBR (Public Sector Net Borrowing Requirement) has shown that the government borrowed £0.5bn more than expected last month, whilst apart from George Osborne’s spot in the limelight there is very little in major releases to write about.