City wary after borrowing forecast

CITY experts gave a cautious welcome yesterday to reports that Gordon Brown, the Chancellor of the Exchequer, is set to announce better- than-expected figures on Government borrowing when he makes his Budget speech on Tuesday.

The Chancellor is expected to confirm that the public sector borrowing requirement (PSBR) is falling sharply and that the government is forecast to become a net repayer of debt in the 1999-2000 tax year. This would lie towards the optimistic end of forecasts made by the Chancellor in his November pre-budget report.

Simon Briscoe, of Nikko Europe, said that although forecasts of a surplus in public finances in 1999 to 2000 could improve market sentiment, "there is a deeply held cynicism in the City about `year-plus-one' forecasts". However, Mr Briscoe added that if the Chancellor were to forecast a surplus for the coming tax year "that would be deeply interesting".

The main impact of a surplus in the tax year 1998 to 1999 would be on market sentiment, according to Mr Briscoe, who said: "It would greatly increase the feelgood factor".

He added that better-than-expected public finances could also lift the bond and the equity markets. If the PSBR is less than forecast, this reduces the value of bonds that the Government is forced to issue. This fall in supply would push up their price. And a rise in the bond markets of this type would also lift the stock market.

However, he warned that any movements in the markets would probably be limited. Any likely change in the level of bond issuance is small compared to the large stock of bonds currently in circulation.

Michael Hughes, of Barclays Capital, agreed the market impact of the better-than-expected news about the PSBR would most probably be "marginal", at least in the short term and stressed the City would be more concerned with how the Chancellor intended to spend any spare cash.

According to Mr Hughes, the Chancellor could use any surplus in the public finances in two ways. He could build a war chest to finance increases in spending or cuts in taxes or he could also try to move the UK economy towards being a sustained repayer of debt. If the Chancellor signals he is at least as concerned about the latter objective than the former, this could prompt a favourable reaction from the City.

Mr Hughes believes the Chancellor needs to become a net repayer of debt and to reduce the sensitivity of the economy to fluctuations in short term interest rates if the UK is to participate successfully in EMU. Last week, the Office of National Statistics revised its estimate of fourth quarter GDP upwards by 0.2 per cent. Buoyant economic growth helps the PSBR as it increases the total amount of tax revenues received by the Treasury.

Last month, it was announced that the Government made the highest-ever monthly repayment of the national debt in January. The surplus of revenues over spending amounted to pounds 10.4bn.

Start your day with The Independent, sign up for daily news emails
News
people
News
A survey carried out by Sainsbury's Finance found 20% of new university students have never washed their own clothes, while 14% cannot even boil an egg
science...and the results are not as pointless as that sounds
News
politicsIs David Cameron trying to prove he's down with the kids?
News
Dominique Alderweireld, also known as Dodo de Saumure, is the owner of a string of brothels in Belgium
newsPhilip Sweeney gets the inside track on France's trial of the year
PROMOTED VIDEO
News
Cumberbatch was speaking on US television when he made the comment (Getty)
people
Life and Style
tech
Arts and Entertainment
Tom DeLonge, Travis Barker and Mark Hoppus of Blink-182 pictured in 2011.
musicBassist Mark Hoppus and drummer Travis Barker say Tom Delonge is 'disrespectful and ungrateful'
Sport
football
Arts and Entertainment
Olivia Colman and David Tennant star in 'Broadchurch'
tvBroadchurch series 2, episode 4, review - contains spoilers
Sport
cyclingDisgraced cycling star says people will soon forgive his actions
News
Britain's Prince Philip attends a Garden Party at Buckingham Palace in London
people
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Ed Sheeran will play three sell-out gigs at Wembley Stadium in July
music
News
i100
News
Lena Dunham posing for an official portrait at Sundance 2015
people
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea