Axa IM’s David Page gives an economist’s view on the Budget

18th March 2015

David Page, senior economist at AXA Investment Managers shares his views on the 2015 Budget…

“Budget 2015 saw the Chancellor juggle the opposing needs of balancing fiscal rectitude with voter-friendly pre-election measures. A fiscally-neutral Budget with crafted measures to voters will be judged by its impact on the polls over the coming weeks. The medium-term outlook for the finances continue to point to deficit reduction, but sees debt falling one-year earlier than forecast and austerity ending before the end of the next Parliament. Budget 2015 also included modest upgrades to the GDP growth outlook, but a softer interest rate outlook that boosted the public finances outlook. Gilt sales are seen broadly unchanged in 2015-16.

“In broad-terms, the Chancellor managed to achieve these opposing objectives.  The Chancellor handed £11billion to households in the form of tax adjustments and measures, including a new boost to the housing market, with a further £2billion in popular cuts in petrol, beer and spirits duties. However, the Chancellor maintained his image of fiscal responsibility with a statement that was fiscally-neutral. Moreover, thanks to an announced £22billion privatisation of government held bank assets in the coming fiscal year, the Chancellor announced that the public debt to GDP ratio would fall one year earlier than previously projected, meeting his original fiscal mandate. Additionally, the Chancellor announced an end to fiscal austerity one year earlier than previously forecast. This allowed the Chancellor to say that austerity is projected to end in the next Parliament. The associated rise in spending for 2019-20 also means spending as a percentage of GDP slow to the same level as in 1999-2000, neutering criticisms that spending was falling to “Depression levels”.

“The Office for Budget Responsibility (OBR)  forecast an upward revision in GDP growth to 2.5% in 2015 and 2.3% in 2016, although revised lower its outlook for investment spending reflecting lower business and dwellings investment growth. Our own forecasts are for a modestly faster pace of GDP growth of 2.6% and 2.7% respectively. Elsewhere the OBR forecasts of lower interest rates, both short-term market rates and market gilt rates, boosted the public finances, reducing forecast debt interest payments, but also increasing the net flows to the Exchequer from the Bank of England’s Asset Purchase Facility. The OBR also edged its trend growth outlook higher.

“Gilt issuance was broadly unchanged for this year, but came in markedly below our expectation for 2015-16 at £133.4bn. This reflected lower cash-borrowing this year (£6bn) and next (£11bn), as well as a marked increase in expected National Savings financing. However, estimates of future financing needs beyond 2015-16 were in line with our expectations.

“As we argued before today’s Budget, the medium-term outlook of the current projections is less relevant than usual as it could change markedly after the upcoming election. Instead, this Budget is likely to have more relevance as to its impact on the election in nearly seven weeks’ time. The success or otherwise of today’s Budget will thus be judged by any reaction in the polls over the coming weeks.”

Below is a more detailed summary of today’s Budget.



Public finances

Gilt issuance

·         Debt Management Office (DMO) projected gross financing beyond in line with our forecasts. DMO illustrative gross financing £148bn 2016-17 (AXA IM £145bn); £124bn 2017-18 (£122bn); £90bn 2018-19 (£91bn) and £116bn 2019-20 (£102bn).

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