Share This Story
Economics Weekly - Budget 2009 to show sharply higher public borrowing
Economics Weekly 20 April 2009
Budget 2009 to show sharply higher public borrowing
Budget 2009 provides the highlight of a busy week in the UK, with the preliminary estimate of Q1 2009 GDP, the latest inflation and unemployment figures and the minutes of the April BoE MPC meeting also due. With the economic backdrop facing the UK much worse than anticipated by the Treasury at the time of the Pre- Budget Report in November, we expect sharp downgrades to GDP growth and public sector borrowing forecasts in Budget 2009 on Wednesday. Although the Chancellor is understandably hampered in terms of the corrective measures he can take at this stage, financial markets will still be keen to hear his plans for ensuring medium term sustainability of the public finances. Bond markets, in particular, will also be prepared for a sharp hike in the governmentâ€™s borrowing requirement. Specific measures in Budget 2009 are likely to be relatively small, primarily aimed at helping the unemployed and smaller companies affected by the recession. Data in the US this week are expected to show the housing market remains fragile, with falls in both existing and new home sales in March. While we forecast modest improvements in a series of key surveys in the euro zone, economic growth is still falling. Canada and Sweden may announce the start of quantitative easing this week.
ô€‚„ Although Budget 2009 will understandably attract the most interest in the UK this week, attention will also be drawn to a series of important economic data. The preliminary estimate of Q1 2009 GDP, due on Friday, is forecast to show output contracted by 1.7%, in line with the 1.6% drop in the previous quarter and the biggest fall since Q2 1980. The annual growth rate is projected to decline to -3.9%, from -2% in Q4 2008. The personal impact of the recession will be highlighted in the latest labour market data, which could show the number of people claiming jobless benefits rose by up to 150,000 in March, pushing the unemployment rate to 4.7%, from 2.5% last year. With joblessness likely to continue to rise sharply in the months ahead, the Chancellor is likely to make safeguarding jobs a key priority in Budget 2009. After recording the first decline since records began in 1991, annual average earnings growth is likely to have fallen for a second successive month in February, reflecting reduced bonuses. The official measure of retail sales volumes is expected to show another sharp drop in March, following on from a decline of 1.9% in February, with a significant risk that the annual growth rate turned negative for the first time since July 1992. After unexpectedly rising in February, UK annual CPI inflation is forecast to fall below 3% in March for the first time in 12 months, while annual RPI inflation may have turned negative for the first time since 1960. We expect headline inflation measures to continue to fall sharply in the months ahead. The minutes of the April BoE MPC meeting, published on Wednesday, are likely to emphasise the risks of undershooting the 2% CPI inflation in the medium term as the main reason for continuing with the Â£75bn asset purchase programme. We expect the decision to maintain Bank rate at 0.5% in April was unanimous.
ô€‚„ It is a quiet week for economic data in the US. The weekly jobless figures, on Thursday, will be closely watched to see if last weekâ€™s fall in initial claims can be sustained. We expect the fragility of the housing market to be underlined by data showing both existing and new home sales declined in March. Durable goods orders may have dropped sharply in March, after a surprisingly strong 3.4% rise in February.
ô€‚„ Leading surveys of euro zone economic activity and business confidence are expected to show modest improvements this week. However, these are from a low base and will still remain indicative of falling overall output.
Jeavon Lolay, Senior Economist, Corporate Markets
Economic Research,10 Gresham Street,
Lloyds TSB Corporate
London EC2V 7AE,
0207 626 - 1500
Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."