JamesSmithRF

This is good from Simon Wren-Lewis on why the country's fiscal woes are not caused by OBR forecasts, the bond market or (most improbably) the frequency of fiscal forecasts.

Finally, today's revisions only slightly change the broad picture of growth since the financial crisis. GDP per person is now about 0.5% higher than previously thought by Q2 2025 (on a comparable basis) BUT it's still more than 6% below its pre-pandemic trend.

The pandemic recovery is now thought to be a little stronger with the real economy 0.7% larger than previous thought by Q2 2025. This has taken us past France in terms of the post-Covid recovery and closer to the G7 average.

Near term growth which was unrevised at 0.7% in Q1 and 0.3% in Q2 - leaving the UK the fastest growing economy in the first half of the year (Rachel Reeves said this yesterday and thankfully for her it is still true today). Growth has been revised down by 0.1ppts in H1 2025 tho.

ONS published a revised set of national accounts data this morning - key data for BoE and OBR in judging whats going on with the economy. Key takeaway is little change in near term pattern of growth but ONS think the economy is a little bigger than previously thought...

And, at the risk of stating the obvious, the reason why the Spring Statement went so badly for the Government was not because of the existence of a forecast, it was because policy changes were rushed and not well designed.

Govt is obv trying to get down to one fiscal *event*. No bad thing. So why did that fail at the Spring Statement? That was because the public finances deteriorated and the govt rightly reacted. This is what transparency looks like. We need more of this, not less.

There's also a key distinction here between fiscal *events* and fiscal *forecasts*. Two forecasts a year is good for transparency (all rich countries do this), but you don't need to make them full policy events.

More on the frequency of fiscal events this morning. Most important thing to understand here is that our fiscal problems are NOT caused by too many events (or OBR forecasts)- they reflect weak growth and higher interest rates that have left the public finances stretched, making decisions difficult.

Disappointing S&P global PMI this morning for the UK - suggests a step down in growth in September. Bad news for the government as it suggests the strong growth in the first half of the year was a blip rather than a new trend. Worrying weakening in growth in the all-important service sector.

Biggest things are VAT and PAYE IT. OBR suggests that cd be erratic tho.

NICs is above forecast, IT is below. The former is related to increase in employer NI at last year's Autumn Budget.

Quick addendum to this thread - big part of the above forecast borrowing is revisions to the first four months of the year, a chunk of which are in Local Authority borrowing. So deterioration in public finances is not just coming from this month's data.

Local authority revisions and lower-than-expected receipts push borrowing above forecast - Office for Budget Responsibility This morning’s ONS release estimates that borrowing in the first five months of 2025-26 totalled £83.8 billion. This is £16.2 billion above the same period last year and £11.4 billion above the monthl...

OBR analysis of the entrails of this is out now and suggests that lower VAT and IT receipts might be erratic (but that NI increase potentially has more information). This will be something to watch closely next month. See: obr.uk/hero/local-a...

So there isn't huge news in this month's public finances data but weaker tax receipts will be a worry for the govt (as the OBR may mark down its forecast for future receipts). Next month is the final public finances release that will be included in the Budget forecast-so we will be watched closely.

By contrast, central government spending is just £0.7bn above forecast this month, and is now £0.2bn above the OBR profile for the year to date (so basically in line with the forecast).

Within receipts, VAT and PAYE Income Tax are the biggest contributors -£3.5bn and -£2.3bn respectively relative to the OBR forecast year to date.

So what's going on? Unfortunately for the govt the biggest bit of news here was weaker tax receipts- cen gov receipts accounted for about £6.1bn of the £11.4bn overshoot in borrowing relative to the OBR forecast in the year to Aug. This is the bit of the pub finance data that has most signal.

This morning's public sector finance data were not great for the government ahead of a difficult Budget. Borrowing was £18bn in Aug, £3.5bn higher than last year, highest in 5 years, and £5.5bn above the OBR forecast. Borrowing is now £11.4bn above the OBR forecast in the year to date.

Overall, while there weren't huge surprises from the BoE, today's announcements will be disappointing both for mortgagors (as rate cuts delayed as BoE frets about inflation) and the Chancellor (given no sign of lower rates and continued QT sales putting upward pressure on gilt yields).

On growth, BoE doesn't see much news in recent data. Key issue here remains that the OBR is significantly above the BoE in the medium term - so we are likely to see some growth downgrades at the Budget - which is bad news for the government.

And the labour market continues to loosen, suggesting more slack opening up and more downward pressure on inflation. BoE says it sees employment changes as close to zero, which is stronger than the message coming from @resfoundation.bsky.social admin-based employment measure.

There is not a lot of sign of this higher inflation feeding into wages yet, though. If anything wages are falling a bit faster than the BoE expected in August (but the process of wages falling back has been A LOT slower than the BoE hoped when it started cutting last year).

Not a lot of news to the BoE's view of the economy today. Key point is that inflation has accelerated again - unlike that in other advanced countries (see chart) - and it is worried this will reignite inflationary pressures in the labour market.

The Macroeconomic Policy Outlook: Q3 2025 • Resolution Foundation UK Government borrowing costs have once again been in the headlines. Recent moves have, however, been overblown: since benchmark 10-year yields peaked at post-financial-crisis highs of 4.9 per cent in...

For more on what's going on with government borrowing costs and why it is a headache for the Chancellor ahead of November's Budget, see: www.resolutionfoundation.org/publications...

This matters because QT has been contributing to the UK having the highest borrowing costs among its peers. Today's announcement means active gilt sales are rising from £13bn last year to £21bn this year. So not clear this will do much to stem upward pressure on yields.

Bigger news was on asset sales (Quantitative Tightening or QT). Here the BoE said 2 new things today: 1 it will slow the pace at which it is reducing the stock of gilts (from £100bn to £70bn- see chart); 2 it is skewing sales away from the long end where yields have been rising particularly sharply.

That leaves us in a historically shallow loosening cycle with rates going down much more slowly than the rose.

So rates on hold at 4%. No surprise given BoE worrying about inflation pickup. The market now thinks BoE is close to the bottom with no more cuts priced in this year and only about one and half priced in over the next year. Disappointing for mortgagors.

As expected, BoE keeps rates on hold at 4% (with two members voting for 0.25ppts cut) as it juggles higher near-term inflation and weaker labour market. Bigger news is the slowing of QT sales to £70bn and skewing to shorter maturities. Thread on all that to follow...