There is nobody in the financial world who does not know that Polonius said to Hamlet:
“Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.”
They are words which the Chancellor of the Exchequer does not wish to hear. He has a problem. In the year 2013/14 he will spend £720 billion and earn £612 billion. He must borrow £108 billion. In the last week he has triggered panic amongst Conservative MPs (especially those with marginal seats) with his proposals to cut welfare expenditure.
This will come to £220 billion in the period 2013/14 and represents 30.5% of total spending. Mr. Osborne proposes cutting £17 billion in the current year, then £20 billion the year after and £25 billion over the next two years. Suggestions that he will restrict housing benefits for under 25-year-olds and penalise better off council tenants tell us he has no real idea how to solve the problem.
This is compounded by the fact that growth is patchy. Manufacturing output was flat in November, construction fell 4% on the month and GDP growth for the fourth quarter of 2013 was 0.6%, down on the 0.8% in the third quarter.
Several economists are predicting GDP growth of up to 4% in 2014 but with the current deficit at around £100 billion the ever dependency on borrowing continues. The one saving grace is that inflation is likely to fall to 2% which will be the first time in five years that the Bank of England has hit its target. Mr. Carney will have time on his hands as he will not have to write a grovelling letter to the Chancellor.
The US jobless figures just published have sent shock waves around Capitol Hill and US rates are almost certainly likely to remain low. The UK base rate is likely to stay at 0.5% throughout the whole year.
Polonius also said to Hamlet:
“To thy own self be true.”
The truth is, Chancellor, that your figures do not add up.
To win the 2015 General Election the Conservatives will be dependent on Ed Miliband completely messing it up – as, of course, did Hamlet.