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-Budget Comes Too Late To Influence BOE Nov 1 Inflation Report
By David Robinson
     LONDON (MNI) - The UK government is likely to add fiscal stimulus in its
Oct. 29 budget, according to a detailed preview by the Institute for Fiscal
Studies (IFS).
     Below are main points from the preview, which was produced in collaboration
with the Institute of Chartered Accountants of England and Wales and Citi
economists. The budget will come too late for it to be included in the Bank of
England's Inflation Report, to be published on Nov. 1.
     --While Prime Minister Theresa May declared the end of austerity at the
ruling Conservative Party's conference this month, the IFS said such a goal is
wide open to interpretation and could be costly. On current forecasts there is
still a deficit of 0.9% of GDP, or Stg21 billion, in 2022-23. If the Treasury
chose to halt spending cuts and meet the government's commitments to raise
health and defence spending, it would be looking at an extra Stg19 billion of
spending in 2022-23, the IFS said.
     --The Treasury could opt to cover the additional spending costs by raising
taxes. Treasury head Philip Hammond has opened the door to tax increases but has
stressed that these would be kept to a minimum.
     The alternative would be to allow borrowing to take some of the strain and
IFS head Paul Johnson said previous experience suggested that this was the most
likely outcome.
     --Public sector net borrowing has returned to pre-financial crisis norms,
at an estimated stg40 billion, or 1.9% of GDP in 2017-18. Borrowing in the first
five months of the 2018-19 fiscal year was 30% lower than in the same five
months of 2017-18 and markedly less than forecast, so Hammond's tax planning
starts from an improved base.
     --The heightened political tension in the UK is not as much of a threat to
the fiscal arithmetic as it might appear.
     The head of the Democrat Unionist Party has reportedly threatened to vote
down the Budget, but Johnson pointed out to Market News that if this happened
existing tax and spending arrangements would stay in place and if Hammond was
not planning to do much in the Budget in the first place little would change.
--MNI London Bureau; tel: +44 203-586-2223; email:
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