European markets steady despite Brussels attacks
Despite falls in travel and leisure shares in the wake of the explosions in Belgium, stock markets managed to hold firm amid the latest terrorist attacks. Even the hard hit holiday and airline companies managed to recover from their lows, and Jasper Lawler, market analyst at CMC Markets, said:
The sad reality is that the more frequent these kinds of events become, the more markets become immune and the response in prices becomes less dramatic.
Tony Cross at Trustnet Direct said:
The FTSE 100 showed some resilience on Tuesday following the latest terrorist atrocities to befall a major European city... Stockmarkets immediately came under pressure, but having falling sharply after the attack London’s blue chip index managed to recover.. its losses.
Amid the chaos, however, uncertainty lingered over how much this attack would disrupt travel across Europe. It will be difficult to put an exact figure not just on the cost of lost tourism, the heartbeat of most cities, but of the extra security needed to combat the terrorists. Airlines and tour operators, the likes of TUI, IAG, Intercontinental Hotels and Carnival, all fell.
So after recovering from their immediate falls, the final scores showed:
- The FTSE 100 finished up 0.13% or 8.16 points at 6192.74
- Germany’s Dax edged up 0.42% to 9990.00
- France’s Cac closed up 0.09% at 4431.97
- Italy’s FTSE MIB was virtually flat, up just 0.01% to 18,698.89
- Spain’s Ibex ended down 0.32% at 8992.0
- In Greece, the Athens market added 0.48% to 544.30
On Wall Street, the Dow Jones Industrial Average is currently up just 9 points or 0.05%.
Gold has added $4 an ounce to $1247 as investors sought havens amid the uncertainty, while Brent crude is up 0.46% to $41.73, recovering from earlier falls.
On that note, it’s time to close for the evening. Thanks for all your comments and we’ll be back tomorrow.
Here’s our report on the appearance of Robert Chote of the Office for Budget Responsibility before the Treasure Select Committee. Phillip Inman writes:
The Treasury will breach its self-imposed welfare cap by £20bn over the duration of the current parliament following the U-turn on disability benefits, the government’s spending watchdog has confirmed.
The Office for Budget Responsibility (OBR) said the reversal of a cut in personal independence payments (PIPs)would add another £1.3bn a year to a welfare budget that was already £2.7bn over a limit set by George Osborne before the general election last May.
Speaking to MPs on the Treasury select committee, the OBR chairman, Robert Chote, said the move would increase the deficit but would not prevent the chancellor from delivering a budget surplus in the year before the next general election.
The welfare cap is one of three targets set by Osborne to measure the success of his economic management. The OBR confirmed before the budget last week that the chancellor would miss his target of reducing the deficit in every year of the parliament.
It also said the welfare cap would be breached in every year under the current projections for the government’s finances. But Osborne remains on target to create a surplus in five years, achieving his third target. However, as a result of the PIP U-turn, it might not be as large as the £10m indicated in the government’s projections.
Chote said there was still a 55% chance of the budget surplus being achieved. He also denied that a cut in migration after a possible exit from the EU would throw the chancellor off course.
The full story is here:
Here’s Capital Economics on the day’s manufacturing PMIs:
Preliminary PMIs published by Markit today suggest that, having slowed sharply in February, manufacturing growth in advanced economies remained very weak in March. The flash manufacturing PMIs rose slightly for the euro-zone and US, but fell in Japan. As a result, a weighted average of the three edged down from 51.0 to 50.9, its lowest level since June 2013. On past form, this is consistent with GDP growth in advanced economies of just under 1%.
Oil is have a volatile day, falling back following the news of the Brussels attacks before steadying again on hopes that a meeting in April could come to a deal to freeze output at January levels.
Brent crude is currently up 0.29% at $41.66 a barrel, having earlier fallen as low as $40.97.
On services, the Richmond Fed said:
Activity in the service sector improved in March following February’s weakness... Growth in revenues, employment, and wages strengthened across the board, with particular intensity in the retail subsector. Retail sales rose sharply compared to a month ago, along with gains in big-ticket sales and heavier shopper traffic. Retail inventories increased dramatically. At other services firms, revenues grew modestly. Survey respondents anticipated good business prospects during the six months ahead.
The Richmond Fed manufacturing index reading of 22 was the highest since April 2010. The Fed said:
Shipments and the volume of new orders increased this month. Employment advanced at a slightly faster pace in March, while average wages grew moderately and the average workweek lengthened. Prices of raw materials and finished goods rose at a faster pace compared to last month.
Manufacturers anticipated robust business conditions during the next six months. Firms expected faster growth in shipments and in new orders in the six months ahead. Additionally, survey participants looked for increased capacity utilization and expected order backlogs to grow. Producers looked for vendor lead times to lengthen modestly.
Survey participants’ outlook for the months ahead also included faster growth in average wages and the average workweek, with a pickup in hiring during the next six months. Over the next six months, manufacturers expected faster growth in prices paid and received.
Minutes after the Markit manufacturing PMI came in lower than expected, another survey paints a more optmistic picture.
The Richmond Federal Reserve composite manufacturing index has jumped to 22 in March compared to -4 in February and an expected level of -1.
And the services revenues index was 9 compared to -2 in February.
As for US jobs:
Flash #PMI also points to ongoing deflationary environment in US supply chains in March pic.twitter.com/mWpdPUJia7
— Chris Williamson (@WilliamsonChris) March 22, 2016
Manufacturing dragging on US economic growth in Q1. Markit PMI 51.4 in Mar (51.3 Feb) points to lingering weakness pic.twitter.com/5iCaDXBgmq
— Chris Williamson (@WilliamsonChris) March 22, 2016
Updated
US manufacturing disappoints
US manufacturing improved in March but slightly less than expected, according to a new survey.
The initial manufacturing PMI index from Markit has come in at 51.4 compared to 51.3 in February and a forecast of 51.9. The new orders index was up from 52.3 to 52.8.
Updated
Wall Street opens lower
Following the attacks in Brussels, US markets have fallen in early trading as investors worry about geopolitical risks.
The Dow Jones Industrial Average is currently 44 points or 0.24% lower, while the S&P 500 opened down 0.28% and Nasdaq dropped 0.53%.
European shares have been gradually falling further during the day, with the FTSE 100 now down 22 points or 0.37%, Germany’s Dax down 0.57% and France’s Cac 1.04% lower.
But, as is usual when riskier assets are out of favour, gold and silver have both moved higher.
Chancellor George Osborne is speaking in parliament now, in the 2016 Budget debate.
In #Budget2016 debate the Chancellor refuses to rule out further cuts to welfare spending only that no further plans.
— Rachel Reeves (@RachelReevesMP) March 22, 2016
Debate v lively, a reminder this is extraordinary session, Chancellor at despatch box can't say how all his sums add up days after Budget
— Laura Kuenssberg (@bbclaurak) March 22, 2016
Andrew Sparrow is covering all the action in his Politics Liveblog:
Updated
OBR hearing: PIP changes in focus
Iain Duncan Smith’s name didn’t come up, but the former Work and Pensions Secretary was the elephant in the Thatcher Room today.
MPs from both sides quizzed the Office for Budget Responsibility over the government’s U-turn over disability benefits (called PIPs) following IDS’s resignation, and the impact on the public finances. And they may be quite happy with the results.
The OBR chief confirmed that a £4.4bn black hole has now opened up in the budget, after the government confirmed last night that the abandoned PIP savings will not be filled by further cuts to welfare.
However, he insists that the impact on the long-term outlook for the UK is not “material”, in fiscal terms.
But Chote later agreed that the £4bn black hole could be wiped out if the UK grows a little faster than currently forecast.
3) Chote stuck to his statement that George Osborne has shuffled revenue and spending around, helping to keep Britain on track for a surplus in 2019-20. However, he doesn’t believe it is actually an accounting wheeze, even though corporation tax changes have been delayed to deliver £6bn in revenue in that financial year.
4) The PIP u-turn means the UK government will breach Osborne’s welfare cap by an even wider margin than before, the committee heard. Chote agreed with Rachel Reeves’s assessment that it will blow through the cap by £20bn over a five-year period.
5) Chote said that Osborne had “selectively” quoted the OBR over the EU referendum question. [The chancellor didn’t tell MPs the OBR hadn’t actually included Brexit risks in its forecasts].
6) The committee also exposed some uncertainty over how changes to business rates will hit local councils. They could lose £1.7bn once more small firms stop paying rates.
#OBR's Robert Chote does not know how the Government will compensate councils for the 1.7bn. Cut in business rates!! #budget2016 #blackhole
— Helen Goodman (@HelenGoodmanMP) March 22, 2016
7) The OBR also conceded that households will be running unprecedentedly deeper deficits by 2020. That could raise the risks of a sterling crisis.
Others must judge whether this fine-tuning is sensible, Chote hinted. Committee chair Andrew Tyrie reckons it is not.
Updated
Chote: Up to others to judge Osborne's 'fine-tuning'
And finally, Andrew Tyrie turns to the impact of the OBR’s forecasting changes.
Are you surprised that the chancellor has decided to change his plans twice a year, in response to your revisions?? George Osborne spent the £27bn ‘windfall’ which the OBR handed him in the autumn statement, and is now trying to plug a gap at some political cost....
Chote says that there is inevitably some noise in the forecasts OBR produce for the Chancellor. Last November’s revision was relatively small, compared to previous changes [and has been reversed by the gloomier new forecasts].
So a chancellor must decide how to handle this noise.
It has been “the revealed preference recently” for most of those changes to be offset, Chote puts it diplomatically. Only an economist could give that answer, Tyrie response.
Chote then explains that it is a consequence of fiscal targets.
The Chancellor has clearly seized a £10bn surplus as 2019-20 as a desirable feature of successive forecasts
It is for others to judge whether the degree of fine-tuning required is a sensible response to the noise in the pre-measures forecasts, or not.
We are an environment when many counties are setting fiscal rules, so there is a question about how quickly policymakers respond to forecasting changes.
It seems to me, Tyrie replies, that there is a good degree of logic to taking a longer-term view.
Chote can’t, quite, be persuaded to agree.
He says:
I can see the logic of your position, but it would be inappropriate of me [to comment]... It’s not our job to say how policy should be set.
Oh Robert, Tyrie sighs. Is there not even the hint of an emotional response?
I will save it for my farewell appearance, the OBR chief giggles. And with that, he’s up and off.
Tyrie will surely hold him to that pledge.
The hearing is over. I’ll post a summary now.
Jacob Rees-Mogg then turns to the sugar tax. Why do you think there is a £1bn set-up cost, before a saving of £500m per year?
That £1bn cost comes from the inflationary impact of the move. More expensive sugary drinks will raise the inflation rate by 0.25% in the first year, which pushes up the interest rate Britain pays on inflation-linked gilts (called linkers).
There’s a small transfer “from drinkers to linkers”, Chote says.
So will it significantly reduce the consumption of sugar?
That’s not something we can answer, Chote says. The OBR has considered how the move will affect customer behaviour, but not exactly what they will drink more and less of.
Rees-Mogg: If the sugar tax pushes inflation up, then won’t people on inflation-linked benefits get more money which they can then spend on sugary drinks?
Chote suggests that many benefits could still be frozen, rather than rising inline with inflation. Not pensioners, though, thanks to the triple-lock (pensions rise in line with inflation, or by at least 2%)
So that means pensioners can still afford tonic with their gin, but young people won’t be able to afford coke, Rees-Mogg concludes.
Updated
Robert Chote is asked by Jacob Rees-Mogg if Chancellor quoted OBR out of context on risk of Brexit: "One has to be realistic." #EUref
— Kamal Ahmed (@bbckamal) March 22, 2016
Robert Chote is asked by Jacob Rees-Mogg if Chancellor quoted OBR out of context on risk of Brexit: "He didn't mispresent." #EUref
— Kamal Ahmed (@bbckamal) March 22, 2016
Chote: Osborne selectively quoted us on Brexit risks
It’s Jacob Rees Mogg’s turn. The Conservative MP and Brexit supporter turns to the EU referendum:
He asks if Chote is happy about the way that George Osborne only quoted part of your statement on the impact of the referendum. Didn’t the chancellor rather over-egg the pudding by quoting your line about the “negative implications” of Brexit, but not mentioning that you haven’t actually judged the impact?
Chote confirms that long-term impact of staying in, or leaving, the EU does not fall within the OBR’s five-year forecasting horizon.
But we have to be “realistic”, Chote continues.
The chancellor only devoted 230 words to our statement - there’s more than 230 words in it. But anyone who read the whole statement would understand our position.
It’s not “the first or the last time that things are selectively quoted”, Chote continues, but the chancellor didn’t misrepresent us.
It’s not like when the prime minister misrepresented the OBR’s position [by claiming that the OBR said that austerity had not harmed growth]
So is being quoted out of context one of the risks of political life, Rees-Mogg asks?
It’s historically not unprecedented, Chote replies.
Stephen Hammond then asks about the £4bn in disability payment cuts that have been dropped. What sort of improvement to growth figures would we need to cover that?
Chote replies that it would only need a very small change to cover £4bn, given the size of the UK economy.
Conservative MP Stephen Hammond turns to the chancellor’s warning about a ‘cocktail of risks’ facing Britain. How much impact did they have on the OBR’s new forecasts?
Most of the downward movement in our forecasts was due to our downgraded view of UK productivity, says Robert Chote, rather than the risks from overseas.
Steve Baker then asks what discussions the OBR had with the Treasury over its treatment of the EU referendum, and the Brexit question.
We met with the chancellor on the 7th (March) and explained our approach, Robert Chote replies.
As usual we sent a draft for checking, they pointed out that we had misinterpreted something Deutsche Bank had said. But that was all.
Steve Baker then asks why the OBR thinks government borrowing costs are going to rise, when they’ve actually been falling steadily.
Chote says that the OBR has used financial market expectations
What happens if sovereign debt costs keep falling, as much as they can do? Will that affect your forecasts?
That will depend why it happens, Chote replies, and whether it is because the global economy is weaker than expected.
[Britain can currently sell 10-year gilts at around 1.5% per year, which is close to a record low]
Steve Baker MP asks whether Bank of England governor Mark Carney is making the OBR’s job harder, when he talks about possible interest rate moves.
Robert Chote says that the ability of central bankers to actually move the curve of interest rate expectations is a matter for debate.....
Over to Steve Baker, Conservative MP, who thanks the OBR for another excellent report.
He then asks why the OBR expects interest rates to dip and not to rise until 2019, while the Bank of England governor has told the committee that the next move is probably up.
How do you feel about the Bank of England saying your forecasts are wrong?
Robert Chote repeats his earlier point, that the OBR has taken market expectations for interest rate rises.
Baker points out that the OBR’s report shows that interest rate forecasts, productivity forecasts and oil price forecasts have all been wildly wrong in the past. Is there any value in them?
Chote explains that the OBR uses the same approach at the IMF on oil - to use futures prices for the next couple of years. That works sometimes, but not always [not for oil recently]
Baker then slips in a jibe about those flawed forecasts:
I’d recommend them to any student of economics, and indeed astrology....
Updated
SNP MP George Kerevan asks the OBR to justify its forecast that UK productivity growth will rise from 0.1% to 2%. A twenty-fold increase!
Robert Chote argues that this isn’t an unrealistic forecast, as 2% is close to the pre-crisis trend.
And his colleague Stephen Nickell explains that productivity was badly hit by the financial crisis and should now recover.
However, the OBS has also revised down its productivity forecasts, given improvements since 2008 have been disappointing.
Chote says the OBR is trying assess two very different periods - a pre-crisis time of solid productivity, and a post-crisis time of weak productivity. You have to make a judgement about where to draw the line and judge the proper long-term average average.
He then points out that US forecasters have subsequently come up with very similar forecasts for productivity.
That’s not a defence, argues Kereven. You’re just picking data that matches your case.
It’s not a defence, it’s a fact, Chote says.
Rachel Reeves MP is also tweeting the answers to her questions:
Treasury Select Cttee: OBR confirms welfare cap will be breached by £20bn over 5 years. Huge black hole in public finances. #Budget2016
— Rachel Reeves (@RachelReevesMP) March 22, 2016
At Treasury Select Cttee: Savings ratio revised down in every year this parliament by OBR. Growth relying on more debt and less savings.
— Rachel Reeves (@RachelReevesMP) March 22, 2016
Helen Goodman MP is tweeting from the hearing:
#OBR's Robert Chote does not know how the Government will compensate councils for the 1.7bn. Cut in business rates!! #budget2016 #blackhole
— Helen Goodman (@HelenGoodmanMP) March 22, 2016
The #PIP and #Bisrate could mean an extra 2.9bn of cuts or on tax or borrowing according to #OBR's Chote #budget2016 #blackholes.
— Helen Goodman (@HelenGoodmanMP) March 22, 2016
Andrew Tyrie asks Steve Nicholls to clarify his warning about interest rate rises possibly triggering recession.
If there was a sharp rise in interest rates, brought about by a large trade deficit hitting the pound, that would have a negative impact on household consumption, Nicholls repeats.
Define “sharp rise” please.
Up to 5%, from 0.5% today, in a year, Nicholls explains.
Mark Garnier MP focuses on the risk of a sterling crisis.
Could we see a ‘bad scenario’ when the Bank of England is forced to raise interest rates to prop up the pound, just as the economy is deteriorating?
The OBR Stephen Nicholls confirms that such a rise in interest rates would cut household consumption.
The benefit to some households would be outweighed by the negative consequences - overall consumption would fall, and that would probably lead to a recession.
That danger is not in the OBR’s central forecast, though.
So is there a sniff of the financial crisis?
That is certainly not a phrase I would use, Chote. But you can look at the various scenarios we have considered.
Chote: Household deficit is unprecented
Conservative Mark Garnier goes next.
You are predicting a current account deficit will be 3.5% of GDP in 2010, a surplus of 0.5% of GDP, but a 3% deficit for households. Is that really sustainable?
Chote say that you can’t see that sort of household deficit in the historical data - so to that extent, it’s unprecedented.
But the current picture of record low interest rates is also unprecedented, leading to various sectoral imbalances. Some economist could look at that picture, and suggest it is a recipe for problems - perhaps a fall in the value of sterling.
The household deficit - the extent to which households are outspending their income - is unprecedented (OBR's Robert Chote to MPs)
— Andrew Verity (@andyverity) March 22, 2016
OBR committee member Stephen Nickell points out, though, that households look in very good shape if you look at the value of their assets against their debts.
But that’s because we’ve had an asset price boom, chairman Andrew Tyrie responds.
Rachel Reeves then points out that the OBR has cut its estimate of the household savings ratio from 4.2% to 3.9% -- does that mean that the new ISA changes aren’t expected to boost saving?
Chote suggests this is not a verdict on the government’s changes. He says the OBR expects higher consumer spending over the parliament, which will have a knock-on effect on the amount they save.
Rachel Reeves turns to the changes to ISAs, which are due to cost £2bn.
How much of that is due to raising the annual allowance limit from £15,000 to £20,000, and how much is from the new lifetime ISA?
The OBR doesn’t know for sure, but estimate that most (perhaps 80%) is from the new lifetime ISA (designed to encourage under-40s to save by giving then £1 for every £4 they put in).
Reeves explains that she believes the ISA limit changes will really only help the wealthiest.
The OBR’s Graham Parker confirms that it will only help those who already save the maximum.
Conservative MP Steve Baker, a committee member, is tweeting some charts from the OBR:
.@OBR_UK are answering qns at #Treascom on disability benefits: assumed PIP composition and spending forecast below pic.twitter.com/tCVf0ZLVRX
— Steve Baker MP (@SteveBakerHW) March 22, 2016
OBR: Welfare cap to be breached by £20bn
Labour’s Rachel Reeves goes next, with an instruction from Andrew Tyrie to get some more joie de vivre out of Chote.
I’ll do my best, she replies, and asks about the welfare cap.
Chote confirms that the government is on track to miss its new welfare cap by around £20bn over the lifetime of the parliament, due to its u-turn on the personal independence payments (PIP) disability benefit.
Robert Chote says the welfare cap will be missed by £4bn a year, more or less, over the OBR's forecast period
— John Ashmore (@smashmorePH) March 22, 2016
Updated
Chote: Migration changes wouldn't sink the surplus
Mann turns to migration. The ORB’s forecasts are based on net migration of 900,000 - so can we hit the surplus target if this changes? [perhaps if Britain leaves the EU]
Out comes the OBR’s forecasts again.
Chote explains that they used three different estimates for migration - high, medium, and low. That raises or lowers the surplus by £4.5bn, which isn’t enough to take it below zero.
Updated
Robert Chote breaks into a smile as John Mann turns to the corporation tax ‘shuffle’.
Tyrie calls him up on it - you seem to show particular emotions when this issue comes up, he teases the OBR boss.
It’s just my natural joie de vivre, Chote twinkles.
Anyway, what is the chances of the government getting the £6bn corporation tax windfall in 2019-20, asks Mann.
We give it a medium-low uncertainty, the OBR team explain. Companies have to pay corporation tax*; many other fiscal measure have much higher uncertainty.
* - even Google, these days.....
Your report predicts that the Bank of England will cut interest rates, John Mann continues.
Chote replies that the OBR has looked at what the financial markets are predicting. And those ‘swaps’ suggest a chance that borrowing costs will come down to a fresh record low this year.
Chote: Surplus less likely, but not much less
Labour’s John Mann goes next, and returns to the issue of the chances of hitting the surplus by 2019-2020 now that the PIP disability cuts have been ditched.
Surely it is less than 55% now, given these savings have been cut?
There is still a 55% chance, when measured to the nearest 5%, Chote explains, adding:
But yes, if you’ve got less money the chance is lower, but not materially lower.
But the PIP u-turn creates a £4bn black hole, Mann points out. Surely that takes the chances of a surplus down to 50%?
Not given the scale of the budget and the various uncertainties, Chote insists. He points to the fan-chart in the OBR’s forecasts, which show that the PIP changes will not materially shift the odds.
So are you saying yes, or no, asks Tyrie?
Chote says:
The probability of achieving a surplus is lower. But to the nearest 5% it’s still 55% but it’s closer than 50% than before.
But it’s still closer to 55% than 50%, the OBR’s Graham Parker adds.
I think that’s a Yes Minister-style “Yes and No” answer.
Updated
Helen Goodman then asks about the government’s pledge not to make extra welfare cuts in this parliament, as part of the disability cuts u-turn.
Is it really credible for the government to hit its budget targets, as so many government departments are now ringfenced from cuts?
Robert Chote replies that it’s not up to to the OBR to say if it’s credible or not. It’s simply a matter of arithmetic that savings must come from the unringfenced areas.
Within any given amount, the more you protect the more the unprotected bit is affected, he adds.
Labour’s Helen Goodman asks if the government is compensating local councils for changes to business rates (which mean more small firms will be exempt from paying rates).
This prompts a long, and confusing, discussion and much flicking through the OBR’s latest forecasts.
Chote concludes that these changes will cost £1.7bn -- and are part of the £3.5bn of undefined spending cuts and efficiency changes.
But the OBR will report back on exactly whether local councils are being compensated, or not, by the latest budget decisions.
Chote gets to the nub of the issue:
Robert Chote of the OBR says Osborne could get around unspecified spending cuts by just aiming for a "slightly smaller surplus"
— John Ashmore (@smashmorePH) March 22, 2016
How are public sector pensions contributing £2bn to the fiscal consolidation in 2019-20?
Chote says the budget shows that the Treasury will not compensate departments for the cost of public sector pension rises, so the money must come from existing spending.
How did the OBR handle the £3.5bn of future undefined welfare spending in the budget?
Chote says that it’s hard to assess exactly how this will effect departmental spending in several years time.
So the OBR assumed that some of the money would come from departmental underspending.
He also points out that the savings are coming from an “efficiency review”.
It’s not our role to say if they are actually efficiency savings or cuts, he explains, whether you are getting more bang for your buck, or simply less buck.
So did the government simply add these undefined savings to make the numbers work?
Chote says that governments always set the full envelope of public spending.
Chote: No government pressure on us.
Have you come under pressure from the government over your forecast, asks Tyrie.
Not at all, Chote replies.
Tyrie points out that Chote has reported being “robust” under pressure from the Treasury in the past. He hopes that efforts to ‘beef up’ the OBR’s memorandum of understanding with the government have helped.
The attention that you have brought to this issue has already discouraged that traffic, Chote smiles.
Why did you say that the chancellor had “shuffled” some revenue around in the budget, asks Andrew Tyrie.
Chote explains that the government has given UK companies more time to adjust to a new system of quarterly corporation tax changes.
And that effect is to “shift” £10bn of revenue from 2017-18 and 2018-19 to 2019-20 and 2010-2021.
Chote says that the biggest change is an extra £6bn in 2019-2020 (when the government is aiming for a surplus)
Q: So you are calling it a shuffle, not an accounting wheeze?
Yes, the treatment is straightforward, Chote says, due to the way that Britain treats corporation tax.
Tyrie says that the OBR should assess its policy of only publishing new forecasts before the budget and the autumn statement, rather than reacting when the government changes policy.
Chote: Surplus chances not affected by PIP changes
Andrew Tyrie, committee chairman, begins the hearing by asking about the OBR’s treatment of the UK’s surplus target.
You attached a 55% probability of the fiscal surplus rule being met by 2019-20, but that was before the government decided to drop plans for PIP disability cuts, says Tyrie.
So what is the new probability?
Robert Chose says the OBR uses a fan chart to assess the probability of hitting various targets.
And given the size of the UK budget, if you take away the £1.3bn in PIP payments, you still get a 55% probability of a surplus before the end of the parliament.
But clearly if you drilled right down into the numbers, it would be a slightly lower probability.
So are you arguing that this is De minimis for the purposes of the 55% probability, asks Tyrie?
Yes, the £1.3bn is not large in the context of other probabilities, but that’s not to downplay the importance of that sum, Chote replies.
Robert Chote, OBR, on the "loss" of the disability payment savings in 2020: "£1.3bn is not a large number at that time horizon."
— Kamal Ahmed (@bbckamal) March 22, 2016
Updated
OBR's Chote gives evidence to Treasury committee
Over in parliament, the Treasury committee is taking evidence from the Office for Budget Responsibility about the 2016 budget.
They will hear from:
-
Robert Chote, the OBR chairman
-
Stephen Nickell, a member of the OBR budget responsibility committee
-
Graham Parker, the third member of its budget responsibility committee
While consumer inflation is still low, UK house price inflation has hit a 12-month high.
UK house prices climbed 7.9% in January compared with the same month last year, the Office for National Statistics says. London and the South East led the way:
Simon French of Panmure Gordon agrees that Osborne is going to miss his budget target, unless there is some tweaking of the data...
Today's £70.7bn ytd PSBR tees up a miss of OBR budget estimates (72.2bn) or more likely some fairly hefty ONS revisions during Q2.
— Simon French (@shjfrench) March 22, 2016
Osborne likely to miss budget borrowing target
Chancellor George Osborne is on the brink of breaking his borrowing target for the current financial year.
The latest public finance figures, just released, show that Britain borrowed £7.1bn in February, more than expected.
That pushes total borrowing since April 2015 up to £70.7bn. Osborne is aiming to borrow £72.2bn in the overall financial year, and it’s very likely that March’s borrowing will push him over the limit.
According to the Office for National Statistics, March’s borrowing would have to be the lowest since 2004 for Osborne to keep within his target.
Fraser Munro of the Office for National Statistics has tweeted the key details:
Public sector #borrowing £70.7bn in financial year-to-date; down £14.0bn on last year https://t.co/fFHPnxuNnG pic.twitter.com/cKgBhqoK6W
— Fraser Munro (@FraserMunroPSF) March 22, 2016
He also flags up how Britain’s national debt is still steadily rising.
As government borrows it adds to debt. Reducing #deficit is not the same as reducing #debt https://t.co/AoU8AiRLdK pic.twitter.com/Jx3m8l00gK
— Fraser Munro (@FraserMunroPSF) March 22, 2016
Updated
This chart from the UK inflation report shows that food, drink and transport costs are still cheaper than a year ago, although the pace of the declines is falling.
The Office for National Statistics explains:
Since the start of 2015, prices for transport costs, food and non-alcoholic beverages and (to a lesser extent) recreational and cultural goods and services have had a downward pull on the rate of inflation.
These have been counterbalanced by an upward pull from price movements for other goods and services, most notably restaurant and hotel bills, and education costs such as university tuition fees.
UK inflation stuck at 0.3%
Breaking: The UK’s headline inflation rate remained at 0.3% annually in February, weaker than economists had expected.
Moody's: UK budget is credit negative
Analysts at Moody’s Investor Services have warned that the budget unveiled by George Osborne last week is ‘credit negative’.
They are unimpressed by the latest economic forecasts, showing weaker growth, and the fact that Britain will borrow more than £30bn more than planned between now and 2019.
They say:
Firstly, the budget incorporates a significant downward revision to the economic growth outlook for the coming years compared to just a few months ago, with real GDP growth now expected to average 2.1% over the 2016-19 period, 0.3 percentage points lower than in the November budget statement. » Secondly, the budget revises deficit forecasts upwards (by between 0.4% and 0.8% of GDP) for each of the next three years....
Hence, compared to the government’s earlier targets, the pace of fiscal consolidation is now markedly slower, and the UK’s public finances will remain weaker for a longer period of time. This is credit negative, given that the UK still has one of the largest budget deficits among its EU peers, such as Austria, Finland (both rated Aaa negative) and comparable to France (Aa2 stable).
This isn’t a formal rating decision from Moody’s, who stripped Britain of its prized AAA rating in 2013. It does suggest, though, that another downgrade is possible if economic conditions don’t improve....
German think tank IFO has reported a rise in economic confidence across Germany. It’s business climate index has picked up to 106.7 this month, from 105.7 in February.
New UK public sector borrowing figure are also released at 9.30am, alongside the inflation numbers.
They are expected to show that Britain borrowed £5.4bn to balance the books in February, following an £11.8bn surplus in January.
Germany’s private sector is growing steadily this month, according to the latest data from Europe’s largest member.
However, there are also signs that demand may be waning.
Markit’s German composite PMI has come in at 54.1, unchanged from February. As with France, service sector firms reported faster growth while factories are lagging.
The flash ‘Services Activity Index’ rose to a three-month high of 55.5.
The flash Germany Manufacturing PMI, though, dipped to 50.4, from 50.5, showing the slowest growth in 16 months.
Oliver Kolodseike, economist at Markit, cautions:
It looks as if momentum in the German economy will remain sluggish in the months ahead, as slowing new order growth was accompanied by the weakest increase in backlogs of work since the summer of last year. Furthermore, there are signs that subdued demand is now also affecting the labour market, as the rate of job creation eased to a near one-year low.
Back to the economic data. France’s private sector is growing at its fastest rate in five months.
Strong service sector growth made up for a weaker performance from France’s factories, according to data firm Markit. A much-needed rise in new business helped to push up activity.
Its French composite output index, which measures activity across the sector, rose to 51.1 this month, up from 49.3 in February (any reading over 50 = growth).
The services sector’s PMI jumped to 51.2, from 49.2, but manufacturing dipped to 49.6 from 50.2.
Jack Kennedy, Senior Economist at Markit, says:
“The French private sector economy ended the first quarter on a more positive note, reversing the dip in output seen during February.”
Airlines & travel names underperform as equities reside in the red & safe havens Bunds, gold & JPY all higher in wake of Brussels explosions
— RANsquawk (@RANsquawk) March 22, 2016
Market fall after Brussels explosion
European stock markets are falling in early trading, led by a sharp selloff in airline and holiday firms.
That follows an explosion at Brussels Airport around an hour ago, injuring passengers and reportedly causing fatalities (this isn’t officially confirmed yet, though).
Tony Cross of TrustNet Direct explains:
The dark cloud of terrorism appears to have returned to haunt European markets this morning with reports of fatal explosions at Brussels airport weighing heavily on sentiment.
Companies reliant on tourism are, understandably, leading the stock market fallers.
Shares in Thomas Cook slumped by 4.8%; it had already warned today that bookings are down this year, partly due to lower demand for Turkish holidays following a terrorist attack in Istanbul. Rival firm TUI fell by 2%.
EasyJet, IAG (owner of British Airways) and Lufthansa are all down over 3%, with hotel groups such as Intercontinental Hotel losing 2.5%.
EU AIRLINE STOCKS FALL AFTER BRUSSELS BLAST; EASYJET DOWN 4.2%
— Francine Lacqua (@flacqua) March 22, 2016
My colleagues are covering the latest developments in Brussels here:
Updated
Michael Hewson of CMC Markets also predicts that today’s inflation data could raise the chances of UK borrowing costs rising soon.
He writes:
Unlike the Federal Reserve, the Bank of England has been much more dovish in recent months in respect to its own rate message. This is despite UK economic data being much better than US data, with average earnings in particular rising on a par with those in the US.
Furthermore, CPI Inflation has also been rising steadily since November’s -0.1%, with another rise expected to 0.4%, from January’s 0.3%. The rebound in oil prices as well as recent sterling weakness has knocked the scenario of rate rises sometime in 2017.
This chart from last month’s inflation report shows how prices finally turned positive recently:
Analyst: Inflation could put pressure for rate hikes
This morning’s UK inflation report could reignite talk of a UK interest rate rise in the not-too-distant future.
David Song, currency analyst at DailyFX, believes the consumer prices index could put could show signs of stronger price growth, perhaps to 0.4% from 0.3% in January.
Another uptick in the U.K. Consumer Price Index accompanied by stickiness in the core-rate of inflation may boost the appeal of the sterling as it puts increased pressure on the Bank of England to normalize monetary policy sooner rather than later.
The BoE’s target is an inflation rate of 2%, which appears some distance away.
Many economists reckon interest rates will remain on hold until 2017, or later, but Song agues that conditions could change.
The BoE looks poised to retain its current policy ahead of the U.K. Referendum in June as the Monetary Policy Committee remains unanimous in keeping the benchmark interest rate at the record-low, but increased price pressures may encourage Governor Mark Carney to adopt a more hawkish tone over the coming months as the central bank sees a risk of overshooting the 2% inflation-target over the policy horizon.”
Updated
The agenda: UK inflation and OBR chief at parliament
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s quiet, too quiet, as they say in the old Westerns. But the edgy calm that has broken out in the markets recently could be shaken by a splurge of economic data this morning.
The day kicks off with new PMI reports from France and Germany, from 8am GMT.
They’ll show how private sector firms are faring this month; whether output is up or down, exports rising or falling, and employment up or down.
Then at 9.3am, the latest UK inflation data could show that prices rose at a faster pace last month. Economists expect the Consumer Prices Index to rise to 0.4%, from 0.3% in January.
That’ll be followed by two new surveys of German business confidence:
Today’s highlights include German ZEW & IFO, manuf & services PMI from FR, GE & EU, UK CPI, US Richmond Fed Manuf Index & API Inventories
— RANsquawk (@RANsquawk) March 22, 2016
Traders expect a quiet start to trading, even though several companies are reporting results.
Our European opening calls:$FTSE 6188 up 4
— IGSquawk (@IGSquawk) March 22, 2016
$DAX 9945 down 3
$CAC 4431 up 3$IBEX 9020 down 1$MIB 18715 up 18
In the City, we’re getting financial results from holiday firm Thomas Cook, housebuilder Bellway, building materials group Wolseley, retailer Majestic Wine and City trading firm IG.
There will be drama in the UK parliament too. Robert Chote, the head of the independent Office for Budget Responsibility, is testifying about last week’s Budget from 10am GMT.
Few would argue the Budget was chancellor George Osborne’s best work, so Chote should be quizzed about the questionable way Osborne claims he’ll reach a surplus by 2019-20, and the £4bn black hole created by the disability payment cuts u-turn.
We’ll be covering all the main events through the day....
