Ultimately the Chancellor kept his word in the sense that there were no new spending or taxation measures unveiled. Alongside this the OBR’s forecasts for borrowing were a touch more upbeat than its previous projections in November, but over the forecast horizon, the shape looks very similar. In terms of growth, 2018 was upgraded a touch to 1.5% from 1.4% but in broad terms the profile of the growth outlook was little changed from November when the OBR downgraded its view of UK productivity growth.

In contrast to November, the OBR now judges that the deficit will fall again in 2017/18. But only just. Borrowing does continue to decline though and the profile is modestly lower than the forecasts outlined four months ago. Once again the OBR’s conclusion is that the Chancellor’s rules on cyclically adjusted borrowing and the debt to GDP ratio will be met with a decent margin. But it also says that the Chancellor’s wider and longer-term objective of balancing the budget is at best ‘challenging’. One of the most notable economic forecast changes came in the shape of the output gap where the economy is now assumed to be operating 0.3% above potential in 2018; this compared to a November forecast where it was assumed the economy was running with a little spare capacity. The economy is also assumed to continue running above capacity in 2019 and at capacity in 2020, 2021 and 2022 too. This shift in view on (the lack of) spare capacity also chimes with the latest mood music coming from the Bank of England, where concerns over a lack of spare capacity have also raised eyebrows and triggered more discussion that a faster pace of rate rises might be warranted.

Still in the UK, the deadline has passed for Russia to give an answer to the charge that it was behind the poisoning of Sergei and Yulia Skripal in Salisbury. Russia has denied any involvement. We’ll be keeping an eye on things today to see how May and her team play it from here though the Prime Minister is expected to announce aseries of measures against Russia.

 
In the US the main news of the day was that Donald Trump fired Rex Tillerson as US Secretary of State, nominating CIA chief Mike Pompeo as his successor. It is said to have been on the cards for some time as the two clashed over policy. It seems Trump is keen to have people who share his views as conversations surrounding tariffs and North Korea in particular are on the horizon. Trump was also presented with a package of tariffs targeting equivalent of $30bn a year on Chinese imports but he urged U.S. Trade Representative Robert Lighthizer to aim for a higher number. Separate to the political side of things, yesterday afternoon we had US inflation data which met expectations at 0.2% month-on-month and 2.2% year-on-year. This helped to reinforce a view that the US can be gradual in terms of raising interest rates. The market still has three hikes pencilled in for this year but it is also putting a decent possibility on either two or four hikes.
 
Lastly out in Canada the Canadian dollar slumped after the Bank of Canada governor Stephen Poloz suggested that interest rate rises will be at a slower pace than previously thought.

 
The day ahead

This morning and afternoon we from various ECB members at its annual “The ECB and Its Watchers” event. In his opening address, ECB President Draghi said that the central bank needed to see further evidence that inflation is rising, which put a little downward pressure on the euro. Alongside the event, we get EU industrial production data for January at 10am which is expected to show a drop of 0.5% after an increase of 0.4% at the end of last year. Finally we have US retail sales figures at 12:30pm which are expected to come in at 0.3% month-on-month for the headline number and 0.4% for the ex-autos outturn. It’s a news heavy day and we will also keep an eye on political developments in the UK regarding the Russia situation as well as Donald Trump’s tariffs and staffing situations.

 
Thought of the day

The world renowned physicist Stephen Hawking passed away peacefully in his home in Cambridge last night. The British scientist, perhaps the most important contributor to the field for many generations, was best known for his works on black holes and relatively and his many achievements and accolades came despite of his long standing illness. His life was even brought to film by fellow Brit Eddy Redmayne in the Oscar winning The Theory of Everything. Professor Hawkins lived an extraordinary life and his works and legacy will likely shape the world of science for many years to come and the dealers at Investec pay tribute today to this extraordinary man.