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Trading Lessons

George Osborne's BrExit Excuse to Scrap UK Government Debt, Deficit and Borrowing Targets

Economics / UK Debt Jul 02, 2016 - 07:37 AM GMT

By: Nadeem_Walayat

Economics

George Osborne Friday announced that he would be using BrExit as an excuse to scrap the cornerstone of his economic policy, one of ending this parliament with an annual budget surplus, instead now stating:

"The referendum result is as expected likely to lead to a significant negative shock for the British economy. How we respond will determine the impact on people’s jobs and on economic growth.

The Bank of England can support demand.

The government must provide fiscal credibility so we will continue to be tough on the deficit but we must be realistic about achieving a surplus by the end of this decade as precisely the flexibility that our rules provide for, and we need to reduce uncertainty by moving as quickly as possible to a new relationship with Europe and being super competitive, open for business and free trading. That’s the plan and we must set to it.”


Which is set against George Osborne's dire warnings pre-brexit outcome of an emergency tax hikes and spending cuts budget of £30 billion! When now the reality looks set to turn out to be the exact opposite i.e. more borrowing and stimulus deficit spending for the UK economy which is what the smart money in the stock market is discounting by rallying and maybe even tax cuts! So instead of a £30 billion austerity propaganda we may now see £30 billion of stimulus THIS YEAR!

However, this is just latest in a series of economic propaganda announcements as the Office of Budgetary Responsibility last dutifully pumped out economic propaganda in March 2016 of revising to increase the amount the UK government would borrow over its term in office from the original £115 billion (May 2015) to £178bn, a 54% increase in the amount they said they would borrow at the outset, and which is also set against their November 2015 revision higher to £143bn.

And as my original analysis and concluding forecast of May 2015 warned to expect far, far higher borrowings than anything that the economic propaganda mouthpiece of the government (OBR) was pumping out at the time, which I warned could end up being TRIPLE the £115 billion to as high as £350 billion, with my forecast conclusion of £315 billion, some £200 billion higher than OBR propaganda of £115 billion.

20 May 2015 - UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt

New Conservative Government Debt Fantasy

Just as the Coalition government ended up borrowing over £200 billion more than it forecast it would so we can also take the new Conservative governments pledge / promise / forecast / hopes / dream to turn today's £90 billion annual deficit into a fantasy land £5 and £7 billion surpluses in their last 2 years in office, that is just not going to happen!

  • 2014-15 : £90.2bn
  • 2015-16 : £75.3bn
  • 2016-17 : £39.4bn
  • 2017-18 : £12.8bn
  • 2018-19 : £5.2bn surplus
  • 2019-20 : £7bn surplus

Therefore instead of borrowing £115 billion over the next 5 years, I would not be surprised if the so called economic austerity Conservative government actually ends up borrowing TRIPLE the amount i.e. the actual amount borrowed will be closer to £350 billion rather than propaganda of £115 billion.

My forecast conclusion is for the Conservative government to again borrow at least £200 billion more than the OBR is forecasting today i.e. At least +£315 billion by March 2020 as illustrated by the graph with the risk that borrowing could turn out to be as high as +£350 billion which is set against the OBR/ governments forecast of just +£115bn.


So whilst the George Osborne now once more ups UK borrowing, which will perhaps go £50 billion higher than OBR's March 2016 increase from £115 billion to £178 billion, so the next likely target announced will be at least £225billion. However this would still be £80 billion LESS than my forecast of £315 billion as the following graph illustrates, as the Government plays a perpetual game of smoke and mirrors played on the general public.

For more on my March budget analysis of government borrowing then see the following video:

https://youtu.be/ZLrs6QmBlJ0

But of course the real debt burden is not that which the headline figures imply as a consequence of what I termed as the Quantum of Quantitative Easing (July 2012 The Quantum of Quantitative Easing Inflation is Coming!) that explained in detail where this game of money and debt printing is going in terms of the REAL debt burden, which basically means that the real UK debt burden is about 30% lower than the actual reported debt to GDP ratio suggests because of the fact that the government is paying interest to itself via the Bank of England which in effect acts to cancel 30% of the public debt, which is why the Debt to GDP ratios that academic economists tend to obsess over are meaningless as a consequence of the Quantum of Quantitative Easing, which is why they cannot see the inflationary consequences of what is going on in the asset markets. Know this that the Quantum of Quantitative Easing is PERMANENT, so whilst the monetized debt may still officially exist, it HAS in effect been cancelled because it will NEVER be repaid but instead rolled over in perpetuity as Inflation does its job of eroding away ALL of its value.

For more on the UK economy and prospects for interest rates for over the next 2 years then see my recent in-depth analysis (06 Feb 2016 - UK Interest Rates, Economy GDP Forecasts 2016 and 2017 ) and accompanying video:

https://youtu.be/75y5aLczdy0

The bottom line is that George Osborne was NEVER going to achieve his target for a budget surplus by 2020! Therefore expect the government's department for economic propaganda to now use the BrExit excuse to keep revising the amount the government is expected to borrow higher every year by at least another £135 billion this parliament all the way towards when the Governments £115 billion original target morphs into the reality of at least £315 billion as per my long standing UK government borrowing forecast.

For what happened on BrExit night see my selection of highlights from 8 hours of BBC coverage of EU Referendum night.

https://youtu.be/l1OrRd6MpjQ

And also see how all hell broke lose once the polls closed Friday as the markets, bookmakers and pollsters ALL got the EU Referendum very badly wrong, as YouGov's 10pm poll convinced all, even Nigel Farage that REMAIN had won triggering a further sharp rally in the FTSE futures and sterling that was sustained until the actual results started to be announced shortly after midnight. Which I covered in this comprehensive video of exactly what happened in the markets during a very volatile trading session.

https://youtu.be/rqK4QwgwjTU

Ensure you are subscribed to my always free newsletter for in-depth analysis of the many future consequences of BrExit.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2016 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Yuriy
02 Jul 16, 10:25
P2P lending

What is your view on P2P lending.

One can lend its money for in between 3.5 - 6%.

Is there a place for such borrowings on a limited basis?

Thanks


Nadeem_Walayat
02 Jul 16, 18:03
P2P Risks

Hi

My view is that if your going to risk your capital then you might as well go for dividend stocks.

Best

Nadeem Walayat


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