UK Spring Statement: ensuring the non-negotiable rules

The Spring Statement on March 26 was planned to just provide an update o n the economic and fiscal outlook . Yet earlier this year Rachel Reeves indicated that government could cut public spending to ensure that the non-negotiable fiscal rules were on target to be met. Meanwhile, yesterday, more than a week ahead of the Spring Statement , the government announced spending cuts of £5bn to the Welfare Budget. More announcements are expected next week as the government was likely no longer on track , according to the O ffice for B udget R esponsibility ’s estimat es , to meet its new fiscal rules, as w eaker g rowth prospects and higher borrowing costs seem to have wiped out the slim fiscal margin the Chancellor had in October. Spending cuts are likely to favored over tax changes , as t he businesses have yet to digest increases in National Insurance contributions and National Minimum Wage , which kick in in early April. Overall, the Spring Statement will show that some m odest fiscal changes were needed to ensure the government staying on target of meeting its non-negotiable rules. Still, the OBR’s growth forecasts will be revised lower, while the gross general government debt will likely remain on a n upward trajectory. Also, the fear is rising among market participants that higher taxes and spending cuts could hurt investment needed to shore up long-term growth, dashing chances of stronger fiscal revenues in the future years. This could lead to a renewed market nervousness should the market lose trust in government’s plans.