UK budget deficit set to undershoot Chancellor’s forecast

By Adam Chester, Mark Miller, Hann-Ju Ho

Recent UK economic data have painted a mixed picture, with the sharp fall in manufacturing production and exports in January contradicted by strong improvements in some of the business surveys – notably, the latest manufacturing and services sector PMIs.

This week’s reports should hopefully bring a little more clarity, with the latest labour market, money supply and public sector borrowing data all due.

The latter will attract particular attention ahead of the 24 March Budget. Public sector net borrowing is forecast to have jumped to £13.5bn in February, taking total net borrowing in the fiscal year to date to £136bn. With only the March figures to come, there is a good chance the FY09-10 budget deficit will undershoot the Chancellor’s Pre-Budget projection of £178bn by around £15bn.

While not much in the scheme of things, it should provide the Chancellor with some welcome wiggle room ahead of the General Election.

Elsewhere, the fragility of the UK labour market is expected to be underscored by a further rise in unemployment in February. In January, claimant unemployment unexpectedly jumped by 23.5k, taking the jobless total to its highest for almost thirteen years.

We expect a further, albeit more modest, rise of 9k. Meanwhile, the latest broad money supply figures are likely to show that the road to recovery remains a slow one, with annual M4 growth forecast to have dropped from 4.9% to 4.5% last month.

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

 


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