Yesterday brought a surprise announcement of a General Election in the UK. I say surprise because the present government has been polling a very long way behind the opposition Labour party. Also rather curiously the Prime Minister seemed to want to sing along with Travis.
Why does it always rain on me?Is it because I lied when I was seventeen?Why does it always rain on me?Even when the sun is shinning I can’t avoid the lightning
A type of metaphor for a rather hapless term in power although someone who I assume was Steve Bray was playing “Things can only get better”. Good song although a slightly curious choice for him personally as his job will soon be over.
It does give us an opportunity to look at an economic issue that will be in the background of the election debate. It had looked as though the public finances release would be drowned out by the inflation figures but now they assume more importance, so let us take a look.
Borrowing – the difference between public sector spending and income – was £20.5 billion in April 2024, the fourth highest April borrowing since monthly records began in 1993.
Actually it was a day for metaphors as another high borrowing figure was rather symbolic of this government’s term. Indeed the Prime Minister indirectly boasted about it as he tried to bathe himself in goodwill from his largesse during the Furlough period. He will no doubt be much less keen to discuss the extra debt it created nor the cost of living crisis it contributed to.
In fact there was an upwards revision adding to the general theme.
Since our March 2024 publication, we have increased our initial estimate of borrowing in the financial year ending March 2024 by £0.8 billion to £121.4 billion, now £7.3 billion more than the £114.1 billion forecast by the OBR.
Not a large one but it does add to the upwards revision we saw last month. Also as it gets a mention above and its forecasts will be quoted as facts by the mainstream media let me remind you of this.
The first rule of OBR Club is that the OBR is always wrong.
The Office for Budget Responsibility
Over the time of its existence the two most spectacular errors have been around bond yields and wages but there is plenty of competition. The point needs to be reinforced because it is not only the media who want to reinforce the OBR. The rather extraordinary word salad from the International Monetary Fund below shows this.
Second, the credibility of fiscal plans should be enhanced…..requiring that an OBR forecast accompany each fiscal event; and extending the OBR’s forecast horizon for its Economic and Fiscal Outlooks to ten years to better capture longer-term spending pressures, as well as dividends from growth-enhancing measures (especially public investments and the impact of private investment incentivized by the recently-implemented capital allowances), which will help provide a more complete picture of the sustainability of public finances.
The emphasis is mine and highlights the air of fantasy economics.If we look back over the longer-term predictions of the OBR as I am a polite man I shall call them hopeless. Also it is revealing that the IMF has just got the UK economy in 2024 completely wrong as we grew by 0.6% in the first quarter exceeding their forecast for the year.
As you are all aware, first quarter GDP surprise was on the upside, 0.6 percent, allowing us to upgrade our growth forecast for this year from 0.5 percent as it was in April to 0.7 percent today.
The only reason the change in the growth forecast was so small was to prevent too much embarrassment. But for our purposes today it is a reminder that the IMF is also a hopeless forecaster and thus sees nothing wrong in boosting the role of the OBR. Under the likely new Chancellor Rachel Reeves this seems to be a plan.
Shadow chancellor Rachel Reeves has announced a new ‘fiscal lock’ to guarantee that the Office for Budget Responsibility (OBR) will publish a forecast to accompany any major decision on tax and spending, with the aim of avoiding the events of last autumn where an apparent disregard for objective evidence led to a loss of faith in the UK’s fiscal policy.
That is from the Institute for Government who seem to be yet another think-tank that are short on thinking.
The shadow chancellor has set out an approach to fiscal policy which has long been called for by the Institute for Government but, says Olly Bartrum, a government committed to fiscal policy making could still go further
That shows a quite extraordinary ignorance of the forecasting errors made by the OBR which is quite something when you consider how frequent they have been. A bit more than the one blind eye turned famously by Nelson as they appear to have two blind eyes. A person of a more cynical disposition than myself might wonder if they anticipate being appointed to the OBR gravy train.
If I may inject a note of realism into the fantasies expounded above new Chancellors are often keen on bathing themselves in fiscal rectitude of a rules in this case set by the OBR. However these seldom survive long when economic reality hits ( political desire for more spending or weaker growth) so I do not expect it to last that long.
Back to the April Numbers
Actually we can stay with the air of unreality of the IMF review of the UK economy as they claim this.
On fiscal policy, the government has done well to follow the prudent fiscal plan that it set out in November 2022.
Yet the very next day the public finances tell us this.
the fourth highest April borrowing since monthly records began in 1993.
In terms of the detail it seems to simply be more spending.
Public sector receipts grew by £1.6 billion compared with April 2023, however, this growth was outstripped by a £3.1 billion increase in spending over the same period.
That theme is reinforced by the national debt figures.
Public sector net debt excluding public sector banks (debt) at the end of April 2024 was provisionally estimated at 97.9% of gross domestic product (GDP); this was 2.5 percentage points more than at the end of April 2023, and remains at levels last seen in the early 1960s.
These numbers have been distorted by the Term Funding Scheme which is about half of the difference between the number above and below.
Excluding the Bank of England, debt was 89.9% of GDP, 8.0 percentage points lower than the wider debt measure.
Those who follow the comments section will note a discussion of what the Bank of England means by a “small number” of extensions to this, so its end and improvement in the debt numbers looks set to be delayed.
Inflation
Next up on recent news is something that is specifically the responsibility of this government but I think is really likely to be unchanged. Our political class mostly have the same beliefs regardless of party. It is going to be ever harder work claiming renewables to be cheap after this.
Today is a defining moment for National Grid as we announce a significant step up in energy infrastructure investment that cements our position as a leader in the energy transition on both sides of the Atlantic. We’re investing around £60bn in networks in the next five years, with over £30bn of that in the UK. ( National Grid)
Also there is the issue of water bills.
12th June @Ofwat
will announce its latest water bill increases. Here’s an update on what the out of control WCs are asking for. Southern Water – 91% to £915 Thames Water – 59% to £749 Severn Trent – 50% to £657 Wessex Water – 50% to £822 etc etc
In rather a twist of role the tweet above was from the former lead singer of The Undertones.
Comment
As you can see our political class seem addicted to both borrowing and inflation. So let me end with some better news which is that we look to be set for another quarter of economic growth following the 0.6% GDP rise last time. In the end that is the biggest issue and comes from a backdrop of very little growth.
Those interested in the debate on UK inflation statistics I will be talking at the Better Statistics conference this afternoon. Sadly it is yet another area where the establishment have egg ( actually a lot of it) on their faces.
Notayesmanseconomics's Blog 
Whatever the economics of the election are, they seem to have breathed life into our stock market that has for decades been like the parrot in the Monty Python sketch, amazing how these “independent” central banks always seem to generate a massive boost to the stockmarkets in election year, and yet at the same time they are supposedly fighting inflation!!! nVidia blasted higher last night after reporting good figures, but Powell is fighting inflation you know.
The British electorate must be one of the most ignorant of any on this planet in my opinion, to think they are going to change the disatrous path this country has been set upon by voting for a different bunch of puppets, incompetent clowns, corrupt wasters and traitors who are all controlled by the WEF/EU is simply breathtaking.
All they know is what they are told to think by the MSM that are controlled by the same people that control the politicians, anyone who even disagrees with any of their policies is attacked(the ferocity of which depends on how dangerous they think that person is to them and how likely they are to influence publc opinion)and called facists, populists, racists or far right.
The degree of control the WEF/EU have over this country’s political system is simply mind boggling, in most european countries parties have sprung up to fight back against the replacement of their people, but over here? Nothing, absolutely nothing, there is only Reform, but I have seen many youtube videos by people who believe they are just controlled opposition, a relief valve for disaffected Labour and Tory voters who will never be allowed to get into anything like a position where the WEF/EU plans can be stopped, and if they did, would never stop their plans.
So sit back and enjoy the farce as the next lot of traitors knock the final nails in the coffin of the UK.
All gone quiet on Angela Rayners investigation hasn’t it? I said she would never be prosecuted, she is too important a figure in the destruction planned for us to be got rid of.
“Independent,” does not mean, “Impartial.”
As a member of the British electerate, just whom am I to vote for?
The existing Conservative Party?
They have presided over an immigration figure of around 1,400,000 in the last two years – having promised ( David Cameron) to reduce immigration to the tens of thousands as far back as 2010.
They still believe that an intermittent source of electricity (Wind power) can provide reliable, affordable and secure electricity all the time.
As a lifelong Conservative voter, I cannot vote, yet again in the hope that they will act in a sensible manner.
The Labour Party will be similar, although even worse. The Lib Dems, the Greens will be similar to Labour, although even worse!
My only hope is the Reform Party, but as their vote is evenly spread, they may win lots of votes but no MPs.
To put it politely, both the country and I are up a gem tree!
Laugh instead of crying.
https://www.loonyparty.com/about/policy-proposals/
When the media go on the street it’s surprising how many people have lost trust in all out politicians and so have I.
Look, look, over here, it’s the ‘wicked’ Russians/Chinese or the W.E.F..
Don’t look over there at the plutocrats and the M.I.C., there’s nothing to see?
A number of points if I may
Thus it is obvious, not just from their record of helping the financial elites benefit from the cheap “privatisation” of companies in poorly managed economies, but also from their stated aims, that the IMF is the enemy of ordinary people & that there should be far more organised helicopter & private jet “crashes.”
Hi therrawbuzzin
I remember Sir Humphrey Appleby explaining how this works in Yes Minister. You do not interfere in the processes of these bodies or try to influence them.Instead you appoint people who do not need influencing.Indeed he quoted the case of judges who were so obviously going for a conviction that juries would acquit out of sheer bloody-mindedness.
So the politicians appoint people who will apply the policies they want and who they can blame if when it goes wrong.
“Judging by the publications of the central banks, as well as the IMF or the World Bank, one would expect so: When these Washington-based institutions send their teams of staff and hired consultants to developing countries, their job can usually be completed very quickly. Without much ado, a new country report complete with major policy conclusions is drafted. The secret of such efficient work: even before these foreign experts had travelled (first class) to the respective countries, the conclusions of their study had already been pre-determined, because they are always the same, no matter which country is concerned: The goal of the axiomatic-deductive neoclassical belief system is to find ex post justifications for the argument that government intervention is bad, and markets need to be unfettered by any form of intervention. This predetermined conclusion is then presented, in the form of ‘research reports’ or ‘studies’, to the leadership of many nations across the world, only vaguely connected to local facts and institutions.
In order to reach such conclusions, neoclassical and central bank economists worked backwards: What kind of model comes to such conclusions? Answer: A model that operates in a dream-like idealized world. What are the features that define such a world? A long list of assumptions needs to hold, creating a bizarre theoretical Neverland: perfect information, complete markets in equilibrium, perfect competition, zero transaction costs, no time constraints, perfectly flexible prices that adjust all the time, everyone is very selfish and does not care about others, and people are not influenced by others. Why do all these assumptions matter? Because neoclassical economists have proven that they all need to jointly hold true, for market equilibrium and efficient markets to exist, and for government intervention to be ineffective.
The next step in the sequence of using such models is the most important one: present in reverse order, by pretending that no pre-determined conclusions existed. Start by listing the assumptions – for sake of argument. Then present the model. Then pursue it to its conclusions, which happen to be… let’s see… Oh, amazing: this model happens to conclude government intervention is bad and only free and deregulated markets will work! Well, in that case, ladies and gentlemen, we shall need to recommend deregulation, liberalization and privatization!
That such economic charlatanry passes for ‘economics’ in leading journals, textbooks and university lecture rooms is a sad indictment not only of the economics establishment, but of academia and society at large.
But what about economies in our world, on the planet we live – as opposed to the bizarre planet described by the economic charlatans? Since none of these assumptions hold, we know that we can neither expect equilibrium nor will deregulation, liberalization and privatization trigger improved economic growth.
During the last four decades, many asset bubbles and banking crises have marred the economy and pushed society off balance. There have been well over 100 banking crises and subsequent recessions during this time period. These boom-bust cycles have caused an unprecedented transfer of wealth from the many to the few. This redistribution of incomes and wealth has resulted in unprecedented levels of inequality. ”
https://professorwerner.org/shifting-from-central-planning-to-a-decentralised-economy/
By the way, I think that the July election means that the UK elites know that they cannot even wait until autumn to raise interest rates, but I may just have confirmation bias on the subject, as I have no training, formal or informal, in economics.
AND…
It is far easier & cheaper to store water purification tablets than water, as they take up much less room & keep longer.
AND…
Vegetables keep better in the ground than in a freezer in event of lengthy power outages.
I suspect Sunak gone early as things will be worse later in the year and going early won’t give reform time to gain any meaningful traction.
There are only 2 parties as people know and tissue paper between them on most important issues.
Voting green, reform, the liberals a wasted vote.
All voting is a wasted vote.
The lower the turn-out the less of a mandate the winner can claim, even in a landslide.
I’m premeditatedly not voting.
If I could. I would vote NONE!
Green is always the most expensive option.
Hello Shaun,
lets be honest about it
Hi Forbin
Very good! A bit harsh on the Daleks though……After all they only wanted to exterminate everyone.
April (and Mays) borrowing figures historically have seen significant adjustments by the June data’s release.