Howard has also crunched through today’s data, and reports that:Reassuring news for the Chancellor as the public finances saw modest improvement in November compared to a year earlier – thereby keeping the government on track to meet – or even slightly undershoot - its upwardly revised target for 2016/17 contained in November’s Autumn Statement.
It would have been somewhat embarrassing if the first set of public finance figures after the November Statement had immediately put question markets over his new fiscal targets.
There was a slowdown in growth in tax receipts in November, primarily due to income tax related receipts dipping 1.1% year-on-year. ONS data show that employment growth has slowed recently, although it needs to be borne in mind that the tax data can be erratic from month to month, partly depending on when exactly the receipts come in. It is also notable that national insurance contributions were up 6.3% year-on-year.
VAT receipts were up 4.4% year-on-year in November and corporation tax receipts were up 22.9% year-on-year, which points to still resilient economic activity.
“The outlook for the UK heading into the new year is a rather bearish one and investors are unlikely to be flying in with both feet as uncertainty continues to swirl.And here’s Dennis de Jong, managing director at UFX.com,
“The gap between UK government spending and income has risen sharply in November, raising a number of red flags with investors who will interpret this as a sign that a significant economic slowdown is coming in the new year.
“Chancellor Philip Hammond has announced the final spring budget for early March where he will attempt to plan for an uncertain future, with the triggering of Article 50 set for later that month.
“If borrowing levels continues to rise at this rate, Hammond may not have too much room for manoeuvre when setting out his fiscal policy.”
Monte dei Paschi said it now expected its net liquidity position, currently standing at €10.6bn, to turn negative after four months. On Sunday the bank had forecast that a current net liquidity position, which was of €11bn, would turn negative after 11 months under a number of assumptions.Remember, MPS must find €5bn of fresh capital by the end of this month.
Once again, we have to think that the market is irrationally exuberant heading into the New Year and while the economic side of the new politics is being fully priced in – US and Chinese stimulus – the political side of the economics – policy mistakes and antagonistic trade stances – are not.
The dollar has made an impressive run but our minds keep circling back to the inauguration of Donald Trump on January 20th as a possible turning point. Markets like to ‘buy the rumour and sell the fact’ and the swelling of asset prices, the dollar and inflation expectations could be a monster version of this trading plan. We cannot be sure until Trump is in the White House and that is in a month’s time.
Last month, inflation picked up to 1.2% - and economists expect it to keep rising in 2017.The British public’s long-term expectation for inflation rose to 3% in December, a more than two year high, according to a closely watched survey by polling company YouGov.
The survey for U.S. bank Citi showed that in December, people on average expected inflation in 5-10 years to reach 3%, the highest level since September 2014 and up from a November forecast of 2.8%.
In the shorter term, respondents to the survey expect inflation in 12 months’ time to be at 2.43% from an earlier forecast of 2.36%.
November is traditionally a seasonally difficult month for the public finances, and we see a deficit of £12bn on the public sector net borrowing (ex-banking groups) measure.