3 Dec 2014
UK 2014 Autumn Statement: Back to the 1940s! - RBS
FXStreet (Guatemala) - RBS analysts delineated the Chancellors autumn statement and noted the sizeable upward revisions to Gilt issuance and jaw-dropping projected spending cuts.
Key Quotes:
“Listening to the Chancellor deliver his Autumn Statement, you could be forgiven for thinking that government borrowing and gilt issuance projections had been revised down”.
“Over the period 2015-16 to 2018-19, there is expected to be an additional £51bn of gilt issuance – a substantial sum, broadly consistent with our expectations for £10-£15bn a year of extra borrowing”.
“The OBR's forecasts assume (rightly in our view) that the 'tax light recovery' persists”.
“Headline PSNB borrowing forecasts are barely altered only because public spending (Total Managed Expenditure measure) as a % of GDP is projected to be cut to its lowest levels since the 1940s – which seems to stretch credulity”.
“GDP projections – little altered, as expected”
“Nominal GDP growth forecasts – what matters for tax revenue projections – were unchanged in 2014 and 2015, so the sharp deterioration in projected tax revenues cannot be attributed to an unexpected change in the growth data/outlook. In other words, the deterioration in tax revenues appears to be more permanent. NGDP projections were lowered from 2016 (-0.8pp, -0.5pp & -0.3pp)”.
“Tax revenue projections – permanent destruction: The OBR lowered its projections for tax receipts substantially – by around 2% of GDP each year. In other words, the OBR is assuming (quite rightly in our view) that the deterioration in tax receipts over the past year will persist; that the 'tax light recovery' is probably here to stay”.
“Spending projections – back to the 1940s: Despite the deterioration in the tax take outlook, the PSNB borrowing projections were barely altered vs the Budget forecasts because public spending projections were lowered by a broadly equivalent amount. Plugging lower spending totals into a spreadsheet is one thing, delivering them is another. The latest Total Managed Expenditure projections now show a fall from 41.5% of GDP in 2013-14 FY to 35.2% in 2019-20 FY. The previous spending projections were already regarded as very tight, so the latest vintage stretch credulity – the OBR's historic data show that this would be the lowest spending outturn (as a % of GDP) since the TME data series began in 1948!”
Key Quotes:
“Listening to the Chancellor deliver his Autumn Statement, you could be forgiven for thinking that government borrowing and gilt issuance projections had been revised down”.
“Over the period 2015-16 to 2018-19, there is expected to be an additional £51bn of gilt issuance – a substantial sum, broadly consistent with our expectations for £10-£15bn a year of extra borrowing”.
“The OBR's forecasts assume (rightly in our view) that the 'tax light recovery' persists”.
“Headline PSNB borrowing forecasts are barely altered only because public spending (Total Managed Expenditure measure) as a % of GDP is projected to be cut to its lowest levels since the 1940s – which seems to stretch credulity”.
“GDP projections – little altered, as expected”
“Nominal GDP growth forecasts – what matters for tax revenue projections – were unchanged in 2014 and 2015, so the sharp deterioration in projected tax revenues cannot be attributed to an unexpected change in the growth data/outlook. In other words, the deterioration in tax revenues appears to be more permanent. NGDP projections were lowered from 2016 (-0.8pp, -0.5pp & -0.3pp)”.
“Tax revenue projections – permanent destruction: The OBR lowered its projections for tax receipts substantially – by around 2% of GDP each year. In other words, the OBR is assuming (quite rightly in our view) that the deterioration in tax receipts over the past year will persist; that the 'tax light recovery' is probably here to stay”.
“Spending projections – back to the 1940s: Despite the deterioration in the tax take outlook, the PSNB borrowing projections were barely altered vs the Budget forecasts because public spending projections were lowered by a broadly equivalent amount. Plugging lower spending totals into a spreadsheet is one thing, delivering them is another. The latest Total Managed Expenditure projections now show a fall from 41.5% of GDP in 2013-14 FY to 35.2% in 2019-20 FY. The previous spending projections were already regarded as very tight, so the latest vintage stretch credulity – the OBR's historic data show that this would be the lowest spending outturn (as a % of GDP) since the TME data series began in 1948!”