Some of our clients will know
that to maintain our high standards and independence, we consult with a
specialist investment company, Cormorant Capital Strategies Limited, to ensure
that our investment recommendations remain current and robust.
Cormorant Capital Strategies has
collated the following thoughts using recently published data, giving views on
various economic issues. Please note
that future predictions are, as suggested, only predictions and cannot be
relied on for the future. These indicators can and will change. Past
performance is not a guarantee of future performance.
A review of the latest OBR Economic and
Fiscal Outlook
The Office for Budget Responsibility (OBR) published its latest
Economic and Fiscal Outlook on 5th December.
1. Gross Domestic Product
Not surprisingly, given its forecast in March for economic growth in
2012 at a rate of 0.8%, the OBR has had to concede that the ‘economy has
performed less strongly... than we expected’. A similar concession would be
required from the median of independent forecasts too; back in March the
consensus outside forecast was 0.5%. Barring surprising strength in the fourth
quarter, it seems likely that output in 2012 will be flat or negative. The
OBR’s updated 2012 forecast is for a fall of 0.1% year-on-year.
Its central forecast for 2013 calls for 1.2% growth (not dissimilar to
the median of independent forecasts of 1.1%) and for 2.0% the following year
rising, optimistically, to 2.8% in 2017. The OBR’s range of estimates suggests
that there is a 1-in-5 chance that the economy will shrink during 2013.
Output remains 3.0 %
lower than during its prior peak in the first quarter of 2008.
2. Inflation
Consumer Price Index inflation is expected to fall in the next few
years from the current rate of 2.7% (November) toward the target rate of 2.0%
from 2015 onwards. The OBR, just like the Bank of England, have been surprised
by the larger-than-expected upward effect of tuition fees and domestic energy
price increases.
3. Employment
The employment situation is characterised by relative strength, given
such poor rates of economic growth. The OBR’s revised forecast shows a 0.7%
decrease (from 8.7% to 8.0%) for 2012 since the March issue of the Economic and
Fiscal Outlook.
4. Government Debt
The OBR are forecasting Public Sector Net Borrowing[1]
(PSNB) to come in at around 5.1% of GDP by March 2013. Exclude the transfer of
Royal Mail pension assets to the public sector and this rises to 6.9% of GDP.
Public debt[2]
is expected to continue to rise toward a peak of 80% of GDP in early 2016.
5. Summary
Economic output remains substantially below the level it reached early
in 2008. The latest central forecast projections from the OBR suggest that the
British economy will not recover the ground it has lost until the final quarter
of 2014. If the OBR is correct in its assessment, relatively low growth in the
years ahead will be accompanied by sustained low rates of inflation (though CPI
will remain above target in the short term) and a steadily improving employment
situation. Total government debt will peak in 2016 at a level close to 80% of
GDP with net borrowing at its highest in 2014 at something like £100 billion.
No individual financial advice is provided during the course of this
Blog.
I hope you have found this information of interest.
Happy New Year to all our Blog readers. I hope 2013 is a
prosperous year for us all.
Keith G Churchouse FPFS
Director, Chapters Financial Limited
Chapters Financial
Limited is authorised and regulated by the Financial Services Authority, number
402899.
[1]
Public Sector Net Borrowing: A measure of
the amount of money the Government has had to borrow in order to bridge the gap
between expenditure and revenue.
[2]
Public Sector Net Debt: A measure of how
much the UK public sector owes (to UK private sector organisations or overseas
institutions) at a point in time.
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