“Britain’s Autumn Statement hints at how painful Brexit is going to be”
THIS year’s Autumn Statement, the first big event on the fiscal calendar since the EU referendum in June, was always going to be a strange exercise. Britain is in a state of unprecedented uncertainty. The government is unclear about what sort of Brexit it wants. Economic forecasting is, as a result, as good as guesswork. The outlook for the public finances is similarly uncertain. Still, as he rose to deliver his statement in the House of Commons on November 23rd, Philip Hammond, the newish chancellor, had to achieve two big objectives.
First, he had to show willingness to help the economy were it to be blown off course by Brexit, all the while keeping the public finances on an even keel. Second, he had to live up to the rhetoric of Theresa May, the prime minister, who has repeatedly promised to help so-called “just-about-managing” families (JAMs), a vaguely defined bunch of 6m or so working-age households on low-to-medium incomes.
Mr Hammond’s task is made harder by Brexit. The Office for Budget Responsibility (OBR), the fiscal watchdog, thinks that by 2020 the economy will have grown by 2.4 percentage points less than it predicted before the referendum. As a consequence, over the next five years the government is expected to borrow £122bn ($152bn) more. But the OBR did not model what Brexit could actually look like. And the risks to the economy—leaving the EU’s single market, say—are clearly to the downside, as the OBR’s documentation appears to show.
Mr Hammond’s main objective, though, is to be able to respond to whatever Brexit throws at him. Out went Mr Osborne’s ambitious target to reach a budget surplus by 2019-20 (see chart). Mr Hammond committed himself to three fiscal rules, but they are hardly savage. A cap on overall welfare spending will not come into force until 2021, when the worst of the Brexit-related uncertainty is over. He wants public-sector debt, relative to GDP, to be falling from 2020.
His third rule is to reduce overall government borrowing, adjusted for the economic cycle, to below 2% of GDP by 2020-21. In effect this allows Mr Hammond to borrow more to cover higher welfare spending and lower tax receipts, which would result if the economy slows. The OBR reckons that by this measure, the deficit will be 0.8% of GDP in 2020.
“In Last Minute Twist OPEC Demands Big Production Cuts From Non-OPEC Members; Russia Balks”
With less than a week to go until the much anticipated OPEC meeting in Vienna on November 30, the oil exporting cartel still seems unable to determine the terms of production cut quotas, who will be exempt from cutting, and even who will participate. According to Reuters, in the latest twist to emerge, as OPEC tries to find the sweet spot for production that reduces the oversupply of crude, the organization will ask non-OPEC oil producers to also make big cuts in output, as it seeks to share the burden of declining output and prevent market share gains by non-OPEC nations.
The oil minister of Azerbaijan was quoted as saying the cartel may want non-OPEC producers to cut output by as much as 880,000 barrels per day (bpd). «It could be expected that OPEC members may ask non-OPEC countries to cut production volumes for the next six months starting from Jan. 1 2017 … by 880,000 barrels from the total daily production,» Azeri newspaper Respublika quoted the country’s oil minister, Natig Aliyev, as saying.
Reuters countered that according to an OPEC source the group had yet to decide on the final figures to be discussed on Nov. 28, when OPEC and non-OPEC experts meet in Vienna. As previously reported, OPEC is expected to discuss production cuts of 4.0-4.5% among its members at the Vienna meeting to comply with the roughly 1.2mmbpd reduction as set forth in the Algiers meeting which expects total OPEC output of 32.5-33.0mmbpd, but Iran and Iraq still have reservations about how much they want to contribute.
A cut of 880,000 bpd would represent less than 2% of current total non-OPEC output.
Shortly after the report came out, Russian energy minister Alexander Novak said Russia was working with Kazakhstan and Mexico, though not the United States, on joint output curbs, but reiterated Moscow preferred to freeze output over cuts. He said that a freeze would be “quite a difficult and harsh situation for us as our plans envisioned an output growth next year.»