Chancellor’s pre-election Budget keenly awaited

By Mark Miller, Global Macroeconomist

In the UK, this week sees a busy economic data calendar featuring the Chancellor’s Budget, CPI and retail sales. In Wednesday’s Budget all eyes will be on Mr. Darling’s projections for public sector net borrowing where the Pre-Budget Report forecast for 2009/10 of £177.6bn may be undershot by an appreciable margin.

Ahead of an election, it may be that savings are directed towards various initiatives, perhaps measures aimed at helping the long-term unemployed.

But as in other countries, fiscal consolidation is still the name of the game. Taken overall, we look for the Budget to be mildly expansionary. Meanwhile, our forecast for February’s annual CPI rate stands at 3.1%.

Notable features regarding February’s annual CPI rate include downward pressure from food prices, which registered a particularly sharp month on month increase (of 1.7%) in February last year. In addition,February’s RPI data will be the first to incorporate a new measure of mortgage interest payments.

The latter is no longer based just on the standard variable rate (SVR), but on a weighted average of mortgage rates including fixed, tracker and discount as well as SVR. While this has the longerterm benefit of reducing both RPI volatility and the differential between RPI and CPI, in practice we think the methodology change will have little meaningful impact on next week’s RPI data.

Meanwhile, we look for retail sales excluding petrol to recover to +0.6% month-on-month in February, following a sharp weather-related decline in January.

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* All charts are sourced to Lloyds TSB Corporate Markets Economic Research, Bloomberg, IMF and Datastream

 


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