User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday October 15, 2007 - 10:48:10 GMT
Lloyds TSB Financial Markets -

Share This Story:
| | Email

Economics Weekly: UK 2007 pre-Budget report: Weaker growth leads to increased borrowing and higher taxation; Weekly economic data preview: Economic data to guide interest rate expectations

Economics Weekly  15 October 2007


UK 2007 pre-Budget report: Weaker growth leads to increased borrowing and higher taxation


Summary - a political pre-Budget report?

Political calculations for a possible snap election in the autumn were evident in the 2007 pre- Budget report, notably in proposals to raise the threshold of inheritance tax and to tax non-domiciled residents which were suggested by the conservative party at its conference two weeks earlier. So this was a pre-Budget report that will be long remembered for its political considerations. But there was a lot of economic and fiscal news in it as well. The pre-Budget report saw a downward revision in economic growth to 2.0%-2.5% for 2008 and a rise in government borrowing both this year and next compared with plans in the 2007 Budget. But the economic background has worsened, leaving little room to raise spending. The net spending increase was small, £0.4bn, for 2008/09 and in fact fiscal policy starts to tighten, with a net tax increase of £1.4bn from 2009/10 onwards.


Economic growth revised lower – but only to the consensus

In the last few years, the Treasury has forecast stronger economic growth than the consensus and has been proved correct to do so. 2007 turned out to be no exception, with the Treasury forecast of 3% growth proving nearer to what now seems the most likely outcome than the consensus of 2.6%. But the new Chancellor has chosen to stay in line with the consensus for 2008, with a projected growth range of 2 to 2.5% for gdp in 2008, leaving the mid point almost bang in line with the consensus at 2.25%, see chart a.


Price inflation is expected to remain on target over the next two years, (see chart b), implying that interest rates will fall from current levels if economic growth slows in 2008. Our central view is that UK interest rates could fall back to 5% in November 2008, if economic growth slows to 2.3%, but there will be no rate cuts in 2007 as the economy is currently growing too quickly.


The Treasury expects the UK current account deficit to remain wide, and investment spending growth to slow after strong increases this year. This means that gdp growth remains driven by consumer spending and it is an expected slowdown in this also that causes the overall rate of annual average economic growth to fall back quite sharply next year, from an expected 3% this year to 2.3%. The US sub- prime crisis was blamed by the UK Chancellor for the coming slowdown in growth, but the real reason is the rise in UK interest rates from 4.5% a year ago to the current level of 5.75%. However, the credit squeeze has exacerbated its effects, particularly through widening interbank spreads relative to base rates. As a result of weaker growth, government spending is also set to slow, and this was more clearly seen in the Comprehensive Spending Review (CSR), which saw real spending growth kept roughly below gdp growth of 2.3%, at 2.1% expected in the next three years, almost half the increase in real terms of 4% over the period 1998-2008.


Pre-Budget report reveals further rises in government borrowing and increased taxation

What of the fiscal arithmetic? The net impact was quite small, just a cut in tax of £0.3bn, despite the spending measures announced. However, net debt as a share of UK gdp will rise from 36.7% in 2006/7 to 38.4% by 2009/10. Whilst this meets the government’s own fiscal rules of borrowing only to invest over the economic cycle and of sustainable investment, it is still a rise in net borrowing over the next three years. Government net borrowing over the current tax year (2007/8), will be £4bn higher at £38bn rather than £34bn as in the March 2007 Budget, see chart c. This rise carried over into 2008/9, with an additional £2bn, taking the total of net borrowing that year to £36bn rather than £30bn in the March Budget. Changes to capital gains tax are expected to raise £900m by 2010/11; inheritance tax cuts will cost £1.4bn by 2010/11 while changes to non-domiciled taxation is estimated to raise £800m by 2009/10.


The main reason for higher borrowing is not increased spending but a shortfall in revenue due to weaker economic growth (see chart d). Slower growth in average earnings has hit income tax receipts this year and slower economic growth in 2008 will hit VAT receipts. This also means that the tax share of gdp will rise as well (see chart e), as the revenue lost from slower growth is partly met from allowing wage inflation to drag more people into higher tax bands.


The long term trend is for further deterioration in the UK public sector financial balance

Continued borrowing at this stage of the economic cycle is bad news for the stability of the public finances in the medium term. After 15 years of sustained economic growth, the UK’s public sector balance should be in surplus. The risk is if the economy slows unexpectedly sharply - this could force government borrowing up to unsustainable levels. However, short term risks from a financial market perspective seem small. UK debt outstanding at 37% of gdp is well below the EU average. The implication of this pre-Budget report is neutral for the financial markets because the net giveaway was small and fiscal policy is expected to become tighter from 2009/10 onwards as higher capital gains tax receipts kick in. Gilts were little moved following the report, because the net issuance is unchanged. Inflation is expected to remain on target and capital spending increases are large, boosting equities and construction firms in particular.


Trevor Williams, Chief Economist


Weekly economic data preview


Economic data to guide interest rate expectations


This week, the key message will be that inflation in the major economies may have stabilised for now, but there continues to be an upside risk, which may encourage some central banks to raise rates and deter others, possibly the US Fed, from cutting them. Also, optimism about economic growth in the major economies could strengthen. The first estimate of UK Q3 GDP could show little if any let up in the pace of economic growth, while the slump in the US housing market may ease. All this will add to the growing market perception that interest rates in the US, the UK and the Eurozone will stay on hold this year, while central banks digest data to conclude whether or not the credit squeeze has slowed economic growth. This slow shift towards a view that the global economy may emerge relatively unscathed from the credit squeeze is adding to the appeal of equity markets over bonds. The G7 meeting on Friday/ Saturday could trigger market unease.


• This is the most important week in the month for UK economic data releases. Overall, the data will show that growth is strong, with some signs of weakness and inflation muted. On Monday, October's Rightmove house price data will show growth slower than September's 9.6%, but prices are clearly still at high level. Official house prices (DCLG) for August are also published and are expected to grow at a slower rate than 12.4% in July. On Tuesday, September's CPI inflation rate may increase back to the Bank of England's 2% target, from 1.8% in August. While RPI, the benchmark for wage negotiations is likely to decline a touch from 4.1% to 3.9%. Headline 3-month average wages growth may remain at 3.5% on Wednesday, one percentage below the 4.5% preferred limit. We are looking for a twelfth consecutive monthly fall in unemployment claims, underpinning robust economic growth. On Thursday, retail sales may have grown strongly by 5.6% pa in September, up from 4.9% in August, after the British Retail Consortium same-store-sales grew at the fastest rate in 3 months. M4, money supply growth, sterling lending and public finances for September, should also support the view that UK GDP growth has held up well. Friday's key data is UK Q3 GDP first estimate; we expect 0.7% on the quarter and 3.2% on the year, hardly supporting a rate cut.


• The minutes of the Bank of England's Monetary Policy Meeting of 3/4 October are published on Wednesday, and will outline the members' reasons for holding rates at 5.75%. Lower CPI inflation and average earnings growth, as well as fears of higher borrowing costs, may have prompted some members to vote for a cut. On balance, it would be unlikely to have been a unanimous decision to hold rates. Mervyn King hinted last week that the BoE is not gearing itself up for a cut and would not 'insulate the banking system from the repricing of risk'.


CPI inflation and housing market data are key releases on the US calendar, both due Wednesday. Although headline CPI inflation may be up 2.8% compared with 2.0% in August, core inflation is likely to have remained at 2.1%. US housing starts and building permits may have fallen in September, but the scale of descent may be slowing. On Tuesday, Treasury International Capital Data for August may show stronger portfolio inflows of $60bn compared with $19.2bn in July, allaying concerns that appetite for funding US Treasuries is waning. A plethora of speeches by Fed members, including Chairman Bernanke, will reiterate the view that the Fed is in no hurry to cut interest rates, but will continue to closely monitor incoming data for signs of serious weakness in economic growth as well as upward inflation pressures. The Fed's Beige book is published on Wednesday, offering clues about economic developments in the US states.


There is little new information released from the Eurozone this week, apart from a possible improvement in ZEW investor sentiment index and confirmation of 2.1% EU-13 CPI growth, both published Tuesday. Attention will turn to discussions of the €/ $ exchange rate and possible intervention to stem its rise at the G7 meeting at the weekend.


Nichola James, Senior Economist


Economic Research,
Lloyds TSB Corporate
10 Gresham Street,
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

Forex Research

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 here.

Forex News
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."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Tue 17 July 2018
AA 08:30 GB- Employment
A 13:15 US- Industrial Production
AA 14:00 US-Powell Testimony
Wed 18 July 2018
AA 08:30 GB- CPI
A 12:30 US- Housing Starts/Permits
AA 14:00 US-Powell Testimony
Thu 19 July 2018
AA 1:30 AU- Employment
AA 08:30 GB- Retail Sales
A 14:30 US- EIA Crude
A 12:30 US- Weekly Jobless
Fri 20 Jun 2018
A 12:30 CA- CPI/Retail Sales

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105