Economic Perspective by Ruth Lea, Economic Advisor to Arbuthnot Banking Group. January 2020
The March Budget: to address regional inequalities In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, takes an early look at the March Budget:
• The Chancellor has announced 11 March 2020 for the next Budget. He is expected to enlarge on the fiscal policies outlined during the election campaign.
• A key campaign policy related to increasing public sector investment from 2% of GDP to 3% of GDP: about £100bn over 5 years or £20-22bn a year.
• It is expected that much of the extra investment will be used for addressing “regional inequalities”.
Concerning regional inequalities:
• There is some evidence, though patchy, that the “North-South divide” widened in terms of GDP growth rates between 2008 and 2018.
• London and the South East are the only UK regions/countries where GDP per head is above the national average (2018 data). On this metric, there is still a “North-South divide”.
• Similarly, there remains a noticeable “North-South divide” relating to productivity (2018 data).
Concerning UK economic news:
• The Bank announced that the growth rate of consumer credit slowed further in November, but the mortgage market was relatively stable.
• Labour productivity continues to disappoint – though it increased in 2019Q3. It increased by 0.4% (QOQ) in 2019Q3 but was only 0.1% high YOY.
• Most of Markit’s field-work for December was before the General Election. Their survey results suggested little change in the month.
• The Bank stated that about a third of the responses for their December monthly Decision Maker Panel (DMP) were received after the election. The post-election responses showed a modest fall in concern about Brexit-related uncertainty.
• In contrast, the latest (January) Deloitte CFO business survey was bullish. It reported the biggest increase in optimism in its 11-year history, with Brexit no longer the top concern, whilst respondents expected UK companies to increase capital spending. Concerning recent political developments:
• The Commons passed the revised European Union (Withdrawal Agreement) Bill on 9 January. The vote on the Third reading was 330 for and 231 against (a majority of 99). The Bill went to the Lords on 9 January.
Ruth Lea said, “One of the key planks of the March Budget is expected to be a “rebooting” of public sector investment from the more prosperous regions to the less advantaged in order to mitigate regional inequalities. We will have to wait for the details, of course. In the meantime, however, it should be noted that there are significant regional inequalities, which could well be mitigated by higher infrastructural spending in the regions.”