Despite the hoopla, the Autumn Statement didn’t tell us very much new. Cautious Osborne is holding fire till the March Budget, or possibly even his pre-election statement next December, before giving away any goodies.
Which takes us neatly to the state of the UK and global economies in 2014. My predictions:
• The US Federal Reserve starts to reduce its monthly bond purchases; i.e. so-called tapering. This could happen as early as the Fed’s March 2014 meeting given yesterday’s encouraging US payroll figures. These reveal a sharp drop in unemployment from 7.3 per cent to 7 per cent. GDP growth in the third quarter hit an annualised 3.6 per cent, also a good sign.
Perversely, too much tapering could puncture the boom in equities, as long-term rates rise and liquidity is squeezed. My guess is that the new Fed boss, Janet Yellen, won’t taper too fast, or too much. If she does, America joins the eurozone in deflation.
• The UK will get its triple-A credit rating back. Moody’s stripped Britain of its top rating in February, cutting it to AA+ and citing “sluggish growth”. Wrong! Fitch followed suit in April just as the UK economy suddenly switched into high(ish) gear.
The markets have already given a thumbs-up – the cost of credit default swaps insuring UK sovereign bonds has dropped below that for everybody’s except Germany and the Scandinavia safe havens.
• The European Central Bank (ECB) finally does something to head off Japanese-style deflation. The ECB recently cut its inflation forecast for 2014 to a measly 1.1 per cent, well below the official target of 2 per cent. Low inflation only increases the real burden of debt carried by the southern European economies.
The ECB will act in 2014 maybe with its own version of quantitative easing. My only worry: will the ECB act soon enough?
• The UK boomlet continues – after all, there’s a General Election in the offing, not to mention a certain referendum. The wild card is that current UK growth is based on consumers running down savings. This constitutes little more than an economic sugar rush unless business investment kicks in.
The Office for Budget Responsibility is predicting just such investment as firms respond to strong consumer demand.
We’ll see. Expect crunch time in 2015 rather than next year.
• World growth picks up. Curiously, the OECD think tank has just revised downwards its forecast for global GDP in 2014 and the eurozone is certainly an accident waiting to happen.
But a combination of Chinese economic reforms and continuing growth in the US and UK should tip the balance the other way.
• No major change to oil prices. The acceleration in US oil production might provoke a dip in world petroleum prices some day – but not in 2014.
Certainly non-OPEC oil production is growing at its fastest for years but the Shia-Sunni civil war creates too much instability in the Middle East for markets to feel secure about supply in the medium term. If global economic growth ticks up, oil prices might even strengthen.
• Santa will not swap his reindeer for an Amazon-type Octocopter delivery system.