Disastrous Spring Statement sees the pound fall as Reeves kicks the can down the road after OBR halves its growth forecast – London Business News | London Wallet

In many ways, the Spring Statement was wholly unsurprising. Since October, the debt servicing bill has ballooned, and growth has vanished.

Higher outlays and lower receipts weaken the fiscal position, and Reeves was forced into repairing it to bring it back into line with her fiscal rules.

A combination of cuts to welfare and departmental spending was the chosen solution, and this had been leaked to the press for some time.

It is a kick-the-can-down-the-road fiscal event. It is an exercise in simply trying to get through unscathed before tax rises become a serious question in October.

She cannot dump the fiscal rules already, as she would lose all credibility with the gilt market – something Chancellors are rightly terrified to do these days.

It is also too soon to raise taxes again, both because she would be breaking a promise, and because the last round of hikes is partly behind the depressing growth figures that put her in this position in the first place.

It is hard to imagine that she gets away with this again in the autumn, however. The long-term demographic and defence-related budgetary headwinds are only going to get harder, and the OBR’s growth forecasts are probably too optimistic, even after cutting them in half.

Add on a US president hell-bent on redefining world trade, and the risks are high for an external shock. Difficult decisions are going to come.

Sterling has so far escaped the type of selloff we have seen at a couple of moments since October, moving down only 0.4% on the day having already weakened on a softer inflation report. To keep foreign investors onside, she needed to: a) not spook them with issuance that is too high or not credible, and b) not worsen fears of a rules-driven growth trap, where meeting the rules worsens growth and in turn pulls the Treasury further from meeting the rules. That was broadly achieved – gilt issuance for 25-26 is slightly lower than expected, and that is keeping yields in check despite some choppiness. Don’t rule out some twitchiness in the coming days, however.