The OBR was wrong in its most recent deficit forecast – out by a mere £30 billion (so far) for the “deficit black hole”. This chart is based on their November 2022 Economic and Fiscal Outlook (EFO). This morning in a sheepish release they admit the deficit is a mere “£22.0 billion below our forecast profile in the headline figures and £30.6 billion below profile on a like-for-like basis”. If you are making forecast errors of that magnitude on a three-month time horizon you are simply not credible.

Good news on the size of the deficit black hole came as:

• Composite PMI was published this morning and hit 53.0 (above 50 indicates the economy is growing) against the consensus forecast of 49 (contraction). Beating the Euro Area (52.3), France (51.6) and Germany (51.1)…
• On top of that the Public Sector Net Borrowing figures for January 2023 were out this morning and they show the books in a surplus of £5.4 billion against market expectations of a deficit of £6.95 billion.
• Last Friday UK Retail Sales for January 2023 came in at up 0.5% month-on-month against expectations of down 0.3%.
• On Wednesday inflation came in at 10.1%, a smidgen lower than the market consensus forecast of 10.3%.
• On Tuesday Average Earnings came in at 6.7% against a consensus of 6.5%.
• Also on Tuesday the number of people in work rose by 74,000 against the market forecast of 40,000.
• The UK Natural Gas trading price fell to the lowest since August 2021 – less than it was before the invasion of Ukraine.
• The 2022 Full Year GDP growth rate was the highest in the G7 for the second year running.
• To top all this good news off the FTSE 100 hitting 8,000 puts it at an all-time high.

This all seems to run counter to the narrative of the BBC and the Labour Party that the economy is in a never-ending downward spiral and is a basket case compared to Britain’s peers. Get a grip people!

Monthly GDP is estimated by the ONS to have grown by 0.1% in November 2022, which is slightly better than expected. Monthly GDP is now estimated to still be 0.3% below its pre-pandemic levels 3 years later. For the quarter GDP fell by 0.3% in the three months to November 2022. Unless there is a growth spurt the UK is likely to be officially in recession next month…

UPDATE: Sam Miley, Senior Economist at the Centre for Economics and Business Research, comments

“The UK economy unexpectedly grew in November, driven by an expansion in the services sector. Beneath the headline growth, there remains evidence of various headwinds impacting the economy, with a sharp monthly decline in manufacturing output being accompanied by a flatlining construction sector. Despite monthly growth in both October and November, a quarterly contraction in Q4 is still a possibility. In addition to continuing consumer and business pressures, the wave of industrial action witnessed at the end of 2022 will also have a downward effect on December’s GDP figures.”

Jeremy Hunt has been re-appointed Chancellor and the bond market vigilantes are pleased. Ten-year gilt rates are back to at 3.6%, exactly where they were before the markets were spooked by the mini-budget, almost a full 1% below their recent highs. Sterling has traded back up as high as 1.15 against the dollar as well.

Now come the difficult choices. Rishi has to decide by how much taxes are going up – and by how much spending is to be held down.

Interest rates will go higher regardless, as central banks seek to contain inflation and undo their monetary mistakes of recent years.

It is often said that a free press is a good constraint on bad government, Guido would add that free capital markets are a good constraint on government spending.

The Labour Party may have enjoyed the recent political benefits of the markets bucking Liz Truss out of her saddle. They should remember that those same bond market vigilantes trust socialists even less…

The gilt market is reacting badly to news that the government will increase the deficit as it cuts taxes across the board. Bond market vigilantes rightly doing what bond market vigilantes do. Important to contextualise that even after Kwasi’s extensive Reaganite package of growth-oriented reforms, the UK’s debt to GDP ratio will remain at the lower end of the G7. It is worth putting this into an international context…

Investors could soon have the chance to capitalise on the inside knowledge of US politicians, as two ETFs are set to launch. The two funds, dubbed NANC and KRUZ in honour of Nancy Pelosi and Ted Cruz, track the trades of Democrat and Republican politicians respectively. The investment opportunity is only made possible by the failure of US lawmakers to pass bipartisan reforms to ban congressional trading. No conflict of interest there…

The move comes amidst scrutiny of congressional trading, with over $290 million being spent in 2021, and could prove lucrative considering congressional trades outperformed the market last year. Co-conspirators curious of capital movements on Capitol Hill can also track congressional trades at Capitoltrades. This article does not constitute financial advice…