OBR's Robert Chote: Still 55% chance of UK budget surplus - as it happened
Britain's fiscal watchdog has being quizzed about the UK budget
- Summary:
- Chote: Still 55% chance of a surplus...
- ...but later admits there's an impact
- Treasury committee hearing highlights start here
5.51pm GMT
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.
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.
5.27pm GMT
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.
Related: Disability benefits U-turn 'will add 1.3bn a year to welfare budget'
4.25pm GMT
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%.
3.38pm GMT
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.
2.30pm GMT
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.
2.20pm GMT
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.
2.04pm GMT
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.
1.59pm GMT
As for US jobs:
Flash #PMI also points to ongoing deflationary environment in US supply chains in March pic.twitter.com/mWpdPUJia7
1.58pm GMT
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
1.54pm GMT
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.
1.38pm GMT
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%.
1.26pm GMT
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.
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
Related: Osborne defends his budget in crucial Commons speech - Politics live
1.25pm GMT
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.
#OBR's Robert Chote does not know how the Government will compensate councils for the 1.7bn. Cut in business rates!! #budget2016 #blackhole
12.37pm GMT
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....
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.
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.
12.20pm GMT
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).
12.15pm GMT
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
Robert Chote is asked by Jacob Rees-Mogg if Chancellor quoted OBR out of context on risk of Brexit: "He didn't mispresent." #EUref
12.11pm GMT
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?
12.01pm GMT
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.
11.57am GMT
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.
11.55am GMT
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.
11.50am GMT
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
11.46am GMT
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.
11.43am GMT
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.
I'd recommend them to any student of economics, and indeed astrology....
11.37am GMT
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.
11.28am GMT
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
At Treasury Select Cttee: Savings ratio revised down in every year this parliament by OBR. Growth relying on more debt and less savings.
11.27am GMT
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
The #PIP and #Bisrate could mean an extra 2.9bn of cuts or on tax or borrowing according to #OBR's Chote #budget2016 #blackholes.
11.24am GMT
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.
11.23am GMT
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?
11.19am GMT
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?
The household deficit - the extent to which households are outspending their income - is unprecedented (OBR's Robert Chote to MPs)
11.13am GMT
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.
11.09am GMT
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?
11.06am GMT
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
11.04am GMT
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.
Robert Chote says the welfare cap will be missed by 4bn a year, more or less, over the OBR's forecast period
11.01am GMT
10.59am GMT
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.
10.57am GMT
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.
10.52am GMT
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.
10.49am GMT
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?
But yes, if you've got less money the chance is lower, but not materially lower.
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.
10.43am GMT
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?
10.39am GMT
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.
10.31am GMT
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"
10.30am GMT
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.
10.29am GMT
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.
10.24am GMT
Have you come under pressure from the government over your forecast, asks Tyrie.
Not at all, Chote replies.
10.21am GMT
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.
10.17am GMT
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.
10.15am GMT
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.
Robert Chote, OBR, on the "loss" of the disability payment savings in 2020: "1.3bn is not a large number at that time horizon."
10.05am GMT
Over in parliament, the Treasury committee is taking evidence from the Office for Budget Responsibility about the 2016 budget.
They will hear from:
9.57am GMT
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:
9.54am GMT
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.
9.52am GMT
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.
Public sector #borrowing 70.7bn in financial year-to-date; down 14.0bn on last year https://t.co/fFHPnxuNnG pic.twitter.com/cKgBhqoK6W
As government borrows it adds to debt. Reducing #deficit is not the same as reducing #debt https://t.co/AoU8AiRLdK pic.twitter.com/Jx3m8l00gK
9.40am GMT
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.
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.
9.40am GMT
9.32am GMT
Breaking: The UK's headline inflation rate remained at 0.3% annually in February, weaker than economists had expected.
9.28am GMT
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.
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).
9.06am GMT
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.
9.01am GMT
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.
8.50am GMT
Germany's private sector is growing steadily this month, according to the latest data from Europe's largest member.
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.
8.38am GMT
Back to the economic data. France's private sector is growing at its fastest rate in five months.
"The French private sector economy ended the first quarter on a more positive note, reversing the dip in output seen during February."
8.29am GMT
Airlines & travel names underperform as equities reside in the red & safe havens Bunds, gold & JPY all higher in wake of Brussels explosions
8.25am GMT
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).
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.
EU AIRLINE STOCKS FALL AFTER BRUSSELS BLAST; EASYJET DOWN 4.2%
Related: Brussels airport: casualties reported after explosions - live updates
8.02am GMT
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.
7.53am GMT
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 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."
7.35am GMT
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.
Today's highlights include German ZEW & IFO, manuf & services PMI from FR, GE & EU, UK CPI, US Richmond Fed Manuf Index & API Inventories
Our European opening calls:$FTSE 6188 up 4
$DAX 9945 down 3
$CAC 4431 up 3$IBEX 9020 down 1$MIB 18715 up 18
Related: Disability benefits U-turn leaves Cameron with 4.4bn to find
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