ITC- UK Budget Previews.
MS expects to see an adjustment in the fiscal rules to allow further fiscal expansion via rise in ceiling on level of public investment from 3 to 3.5% og GDP and pushing back date for current budget balance by 2 years to FY2024/25. Gilt issuance to rise from £137bn in 2019-20 post-January remit adjustment to £146bn in 2020-2021.MS also note “The second key focus for investors of the Budget will be the consultation on RPI phaseout, which is scheduled to be published alongside the Budget and to run for six weeks until April, leading to a government response in the summer, before recess.”
NWM: expect more at £166bn. NWM forecast a PSNB deficit of £65bn (2.8% of GDP) in 2020-21 FY, a £25bn increase vs the November 2019 official forecasts. NWM expect further increases across ST and MT while LT and particularly Linkers are expected to experience another decrease in percentage term. On the other hand, MS reckons that proportion of issuance by maturity bucket will remain consistent with previous years.
Here’s their 2 minute video on the budget tomorrow:
RBC: expect to see gross gilt issuance of £177bn for 2020/21 (vs £137bn this year) and, in their view, a strong probability of a Bank of England announcement on policy easing.
Citi: A 2020 Fiscal Trilogy — The 11th March budget will likely be the first of three major fiscal events in 2020, with a spending review and potential autumn budget expected to follow.
• Government Likely to Hold Steady for Now — On balance, we think the government is more likely to take a cautious approach this time, sticking to its electoral fiscal framework. However, an acceleration of the coronavirus outbreak could yet prove a game-changer.
• Significant Risks Throughout 2020 — With the departure of Sajid Javid, we think the government will now break with its fiscal framework sooner. Risks of further fiscal stimulus either on 11th March or, more likely, later in 2020 have increased.
• Gilt issuance remit for FY20-21— Our updated gilt issuance forecast is £170.4bn, split 25.8% shorts, 23.7% mediums, 26.5% longs, 17.1% linkers and 6.9% unallocated. Gilt issuance looks set to remain around £170bn in the years ahead.
Lloyds: The recently appointed Chancellor of the Exchequer, Rishi Sunak, faces a tricky balancing act as he prepares to deliver his, and the new Conservative government’s, first Budget at 12:30GMT on the 11th March.
On the one hand, he needs to show that the government is delivering on the Prime Minister’s pledges of ‘levelling up’ the country and ‘unleashing Britain’s potential’.
Yet, on the other, his means of achieving these objectives through increases in ‘day-to-day’ current spending is likely to be constrained by a number of factors, not least his predecessor’s fiscal rules and statistical changes to the public finances.
This leaves the Chancellor with only limited room to increase current spending without finding offsetting cost savings/revenue increases elsewhere, particularly with likely downgrades to GDP growth forecasts to add a further constraint.
Therefore, in the absence of a more major re-write of the rules, scope for significantly increasing day-to-day spending is likely to be limited, more so as tackling the near-term fallout from the covid-19 virus is also likely to be high on the agenda.
The greater focus, therefore, is likely to be on investment spending where the fiscal rule governing capital expenditure is less restrictive and provides the Chancellor significant headroom to meet some of the government’s manifesto pledges.
However, the delay to the Infrastructure Strategy to later this year means that only the size of the overall spending envelope is likely to be announced at this stage.
It is important then to view this Budget as one of three fiscal events this year, with another Budget scheduled for the autumn and the Spending Review in September, leaving the Chancellor with the option of deferring some changes until later in the year.
Investec: Wednesday 11 March sees new Chancellor of the Exchequer Rishi Sunak present his first Budget. There has not been a UK Budget since October 2018. One had been planned for November last year under previous Chancellor Sajid Javid, but it was postponed due to December’s General Election. As a result, Britain has just had the longest period without a Budget since at least the 19th century.
• The emphasis of the Budget will be the delivery of the Government’s election promises. Most significantly, this involves ‘levelling up’ the economic discrepancies across the various parts of the UK. Indeed PM Boris Johnson has spoken of the need for everyone to be able to ‘get a fair share of future prosperity’. A key intention here of course is to raise spending, both on national infrastructure and in specific areas in less prosperous regions of the country. In practice though, this will be more of a medium-term process than the result of one Budget exercise. Indeed this week’s Budget will be the first of a trilogy of fiscal events which will include a Spending Review later this year and a further Budget in the autumn. Of course given the likely expansionary stance of the Budget, Mr Sunak will no doubt also bill his Budget as an exercise in tackling the downside risks form the coronavirus.