The Chancellors Autumn Statement and the Financial Markets

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The Chancellors Autumn Statement and the Financial Markets

The Chancellors Autumn Statement and the Financial Markets

All eyes will be on the Chancellor today as he delivers his Autumn statement, and the usual speculation is doing the rounds about what he will say.

Interestingly, the OBR's growth forecasts will come after his statement and, considering that everyone from the OECD to the BCC have reduced their growth forecasts, we can expect the same from the OBR. They are clearly saving the bad news until after Gorgeous George has spoken.

The overriding theme of today's statement will be that, as things stand, the Chancellor is not going to hit his fiscal targets by 2015/16. Growth has been too sluggish and he's had to borrow more than expected.

This means that, since he can't change course, he will have to impose more spending cuts and tax rises if he is going to meet those targets.

If we weren't used to the term 'austerity' by now, we will certainly get used to it over the next few years as there's likely to be more to come.

We are just over half way through this parliament and the Chancellor's austerity program hasn't even implemented half of its measures to bring the deficit down.

By the end of this tax year, only 40% of the austerity measures will have been imposed and very little of that is from cuts to government spending.

Whilst many in the public sector have suffered from pay freezes, overall spending remains at similar levels to a few years ago.

Many argue that the government should do more to reduce its own spending, rather than add tax after tax after tax as most of the austerity to date has been.

Meanwhile, the stock markets are in a bullish mood, with the FTSE up 25 points at 5895 and not far from testing the near-term resistance around the 5900 level.

There's a sense that, since the Chancellor's previous budgets and recent UK growth have been so bad, today's statement might actually be a pleasant surprise.

After all, his recent appointment of the next Governor of the Bank of England was taken well.

By Simon Denham - 05 December 2012

Chancellors Autumn Statement - Part 2

Update - 06 December 2012

The Chancellor didn't pull anything magical out of his hat and the admission that he was not going to hit his original fiscal targets has put our AAA credit rating under the spotlight.

Despite all his efforts to reduce our debt, the lack of growth has made it impossible to achieve his original plans.

After years of declines, there has been a gradual rise in the UK's 10 year government bond yields as it became clear that George would have to borrow more than expected this year.

As he announced yesterday, this increase in borrowing has subsequently realigned his targets and means that the credit ratings agencies will be circling.

It comes as little surprise that the summer's fall in gilt prices, and corresponding rise in government borrowing costs, suggests that investors are expecting a downgrade in 2013.

Such a move would help the government's opposition make some political ground since Dave and George have been crowing about our AAA status throughout the austerity program.

Nevertheless, it wouldn't necessarily be the disaster that they'll make it out to be.

We've already seen the US and France lose their AAA credit ratings. In the case of France, a country at the centre of the European sovereign debt crisis that has done little to address its debts, this has actually seen its borrowing costs fall to recent lows.

For once, the Chancellor actually came away from one of his statements without egg on his face and almost looked like he knew what he was talking about.

Unfortunately, however, it does mean more austerity for longer and it will take even more time to rebalance the books after the years of mismanagement pre-2010.

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By Simon Denham, 6 December 2012

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