Archive for April, 2009

Articles

Mr Darling’s Budget

In Uncategorized on April 28, 2009 by treasuryconsultancy

Why was there so much surprise about the content of the Budget last week? We were able to make educated guesses about the level of Public Sector Debt. We already knew some of details of the proposals because they were either in November’s Pre-Budget report or leaked to the press during the days running up to last Wednesday. What was slightly more surprising, was the forecast that economic growth would return in the final quarter of this year – but we have to have an election before June 2010, so anything more pessimistic would have produced really scary figures.
When Gordon Brown was the Chancellor of the Exchequer, there was no doubt that his Budgets were all his own work. Now that the Chancellor is Alastair Darling, there still seems to be Mr Brown’s fingerprints all over the Budget, which is only to be expected given his management of the economy over the previous 10 years and the fact that he will be calling the next election.
So what is likely to be the impact on the economy? Very little, given that interest rates are already as low as they can be and the banks that needed to be bailed out have been bailed out. There could still be more trouble, such as additional banks getting into difficulties, although a major commercial failure might be more likely. The housing market could recover slightly but inflation and interest rates will probably stay at their present level, at least for 3 months whilst the economy responds to the new low interest régime.
On the Foreign Exchange markets, Sterling has already recovered a little against the Dollar, but not against the euro, which is more difficult to understand. However, exports could pick up and domestic demand could stay quite firm through the summer if more people decide to stay in this country for their holidays.
The message from the recent Treasurers Conference is that a further crisis in Pensions is likely because of low interest rates, and depressed equity markets. It will also be no surprise when the Pension Protection Fund has to increase the contributions from existing funds. But that is nothing compared with the cost of the public sector pension schemes where really big public expenditure savings can to be made with the capping of the Public Sector inflation linked defined benefit pension schemes. Someone has to do it and the potential costs are enormous. Either Mr Brown will cap them – to go out with a prudent bang, or it will be the first thing that Mr Cameron does. Either way, the public sector unions won’t like it and we may see major disruption as a result…………….Phew!

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