Budget ’21: ‘OBR’s forecasts may well turn out to be too optimistic’ says Quintet’s Antonucci


Commenting on the Autumn Budget and the economy, Daniele Antonucci, Chief Economist & Macro Strategist at Quintet Private Bank (the parent company of Brown Shipley), said:

“Even though the UK economy has so far recovered faster than expected, its pace of expansion has now lost momentum. The OBR’s forecasts may well turn out to be too optimistic. In particular, the ongoing energy shock plus a range of supply bottlenecks and shortages are key downside risks.

“We do think the new fiscal rules, from a medium-term perspective, provide a sound framework. Given high debt levels, and likely interest rate hikes in due course, a fall in underlying public-sector debt as a share of GDP, over time, would reduce the sensitivity to changing financing conditions.

“We suspect this logic fits with the idea that the Bank of England may start raising rates as soon as next week. Of course, this will be from record-low rates and, probably, at a rather measured pace, but the Bank has signalled that it sees persistent inflation pressures and looks ready to tighten policy and so, further down the line, cutting the debt burden should mitigate any upward pressure on interest expenses.

“Equally important, while there’s flexibility to cope with extraordinary circumstances, allowing borrowing only for investment, in normal times, seems sensible, while everyday spending should be paid through taxation.

“The increase in departmental spending looks more generous than expected, defying some concerns of possible selected freezes. In part, some of this will likely boost public-sector wages and finance the rise in the national living wage. In part, the priorities of supporting ‘levelling up’, skills and education, housing and healthcare are confirmed. Perhaps disappointingly from a structural point of view, the R&D spending target is now delayed.

“The cut in business rates looks helpful, even though the sense is that it could have gone a bit further as a more fundamental reform has been delayed. And scrapping the planned rise in fuel duty is welcome, too, given the spike in energy commodities, just like the reduction in air passenger duties for domestic flights. The change in universal credit looks like a significant tax cut.”


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