Yesterday saw the IMF join the chorus expecting better economic times ahead.
The cyclical upswing underway since mid-2016 has continued to strengthen. Some 120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronized global growth upsurge since 2010…….Global growth for 2017 is now estimated at 3.7 percent, 0.1 percentage point higher than projected in the fall. The stronger momentum experienced in 2017 is expected to carry into 2018 and 2019, with global growth revised up to 3.9 percent for both years (0.2 percentage point higher relative to the fall forecasts).
Part of this was due to revising the US economy upwards( ~0.4%) due to the Trump tax cuts. This was obviously so painful to the IMF that it could only get some relief by revising the UK down a little in 2019. In reality the UK is likely to be pulled higher too by the global upswing as even Lord O’Neil formerly of the Vampire Squid now admits. From the BBC.
Britain should prepare for a much more economically optimistic 2018 because global growth is better than predicted.
That’s the argument of Lord Jim O’Neill, the former Conservative Treasury minister and Remain supporter.
He said Britain’s growth forecasts are likely to be upgraded as China, the US and Europe show increased activity.
Fair play to him for having the courage to correct past mistakes and the only worrying part of all this is that too many establishment groups and figures are telling us the future is bright! Just look at their track record……
Moving to the public finances there has been a fair bit of news on the Public Finance Initative or PFI front post the Carillion liquidation which I looked at on Monday last week. The National Audit Office pointed out the scale of the issue late last week.
There are currently over 700 operational PFI and PF2 deals, with a capital value of around £60 billion and annual charges for these deals amounted to £10.3 billion in 2016-17. Even if no new deals are entered into, future charges which continue until the 2040s amount to £199 billion.
These schemes have brought some benefits but they have also brought problems mostly because the real rationale as I have pointed out many times was this.
However, most private finance debt is
off-balance sheet for National Accounts purposes.
The politicians doing this in effect get a benefit such as a new hospital but shift the burden of paying for it into the future and thus worsen the future public finances.
Unlike conventional procurement, debt raised to construct assets does not feature in government debt figures, and the capital investment is not recorded as public spending even though it is for the public sector.
In essence the projects are driven by the rules of our national accounts ( more specifically avoiding being measured….) rather than any economic gain.
PFI can be attractive to government as recorded levels of debt will be lower over the short to medium term (five years ahead) even if it costs significantly more over the full term of a 25–30 year contract.
You don’t say!
The news opened in positive fashion.
Public sector net borrowing (excluding public sector banks) decreased by £2.5 billion to £2.6 billion in December 2017, compared with December 2016.
There were strong performances on the receipts side with Income Tax receipts up by £700 million and VAT ( a sales tax) up by £600 million. There are hints there of underlying economic strength and of course the higher VAT receipts give a rather different picture to what we were told by the retail sales numbers. On the expenditure side there was something to give a wry smile in the circumstances.
In December 2017, the UK’s net contribution to the European Union (EU) was £1.2 billion lower than in December 2016.
December can see atypical payments between member states and the EU. December 2017 saw a credit to the UK of £1.2 billion following the adoption of agreed amendments to the 2017 EU budget which reduced the size of the 2017 budget and adjusted member states’ contributions to reflect updated economic forecasts.
Or maybe someone has a sense of humour as it will all come out in the wash anyway. Also we need to note that a regular feature was still there as debt costs were higher by some £500 million which will be mostly driven by higher payments on index-linked Gilts affected by the fact that the Retail Prices Index has pushed over a 4% annual rate of growth.
This too as you might imagine was given a boost by the December data.
Public sector net borrowing (excluding public sector banks) decreased by £6.6 billion to £50.0 billion in the current financial year-to-date (April 2017 to December 2017), compared with the same period in 2016.
This means that the first rule of OBR Club had yet another good year in 2017 as you will note from its November review of the state of play. The emphasis is mine.
That said, the public finances have performed better than expected. The ONS has revised borrowing in 2016-17 sharply lower, relative to its initial estimate and our March forecast. And the deficit has continued to fall in the first half of 2017-18. We have revised borrowing down by £8.4 billion to £49.9 billion for the full year,
Thus the OBR is left in the awkward situation of hoping that the UK Self-Assessment season for Income Tax is a poor one. Such a view will not be helped by the December data being good although the data can be erratic.
Here is a breakdown of both sides of the ledger.
In the current financial year-to-date, central government received £504.0 billion in income, including £376.8 billion in taxes. This was around 4% more than in the same period in the previous financial year.
Over the same period, central government spent £538.9 billion, around 3% more than in the same period in the previous financial year.
As some of the expenditure increase is caused by the rise in inflation via its impact on index linked Gilts then we do indeed have austerity if you define it as expenditure rising by less than the rate of inflation.
What about the National Debt?
We come into the real lies, damned lies and statistics section here. But let me try and shin a little light. Over the past year it has risen but mostly that has been due to some credit easing ( Term Funding Scheme) by the Bank of England. Over the past year it has raised the National Debt by £89.1 billion and as you can see below this makes a difference to whether it is going up or down.
Public sector net debt (excluding both public sector banks and Bank of England) was £1,591.4 billion at the end of December 2017, equivalent to 77.2% of GDP, a decrease of £26.8 billion (or 3.6 percentage points as a ratio of GDP) on December 2016.
Sadly there is still a lot of manipulation and misrepresentation going on as the main cause of the fall is what happened to the Housing Associations.
As of the end of October 2017, English HAs’ net debt amounted to £65.5 billion, which from November 2017 is no longer to be counted as public sector debt.
It is rarely reported that we use a completely different system to that used by the ratings agencies and the Maastricht criteria so here is the latter.
general government gross debt was £1,720.0 billion at the end of March 2017, equivalent to 86.7% of gross domestic product (GDP); an increase of £68.1 billion on March 2016…general government deficit (or net borrowing) was £46.9 billion in the financial year ending March 2017 (April 2016 to March 2017), equivalent to 2.4% of GDP; a decrease of £29.0 billion on March 2016.
It is like a numerical equivalent of alphabetti spaghetti isn’t it?
As we try to peer through all the attempts to deceive us about the UK public finances then we get a perspective on this announcement from the UK government. From The Times.
Theresa May is set to authorise the creation of a rapid response unit to stop fake news spreading online.
The team, which will be based in the Cabinet Office, will be tasked with monitoring social media to identify and challenge disinformation.
Time for some Depeche Mode.
It’s too late to change events
It’s time to face the consequence
For delivering the proof
In the policy of truth
Is what you swore
The time before
Is what you swore
The time before
The reality is that things are getting better albeit we are still a fair way away from the “promised land” of a surplus which we should be used to by now. As ever it is just around the corner. As to the underlying economy even the CBI seems optimistic looking ahead.
The survey of 369 manufacturers revealed that optimism about both business conditions and export prospects improved at an above-average pace.