5 December 2012

Economic Comment
UK Autumn Statement No Surprises

Philip Morrish

philip.morrish@intellisys.uk.com / +44 (0) 20 3239 8994

There were no great surprises to emerge from todays UK Autumn Statement and this was confirmed by the equity markets initial reaction. Indeed, it would have been surprising if there were because the Autumn Statement is really a glorified half-term school report that gives the Chancellor and his Treasury buddies an opportunity to provide an economic reality check, tinker at the policy periphery, flag new policy ideas and gauge reaction. We have long stated that the UKs economic recovery would be long and slow because of the multiple challenges of shrinking the bloated public sector, eliminating the annual budget deficit (ideally reverting to a surplus) and growing the economy. While throughout this process maintaining public (i.e., electoral support) and market confidence in the form of the Triple A credit rating. Those factors alone would choke off the pace of any recovery but other major economies and economic blocks are similarly struggling to rebalance their economies, which continue to moderate the global economys recovery. Therefore, it was no surprise that the Governments independent economic forecasting body, the Office for Budget Responsibility (OBR) revised its GDP forecasts for 2012 2017 but, apart from their 2012 expectation, we and other commentators believe these remain overly optimistic. The UK Chancellor has stated that further public sector budget cuts are going to be found from the non-protected Government departments and we believe that these cuts will increasingly bite during the 2013 2015 period and constrain the overall pace of recovery. Consequently, an obvious but critically important point to make is that with the economy still about 5% below its 2007/08 peak any modest quarterly economic improvement will be magnified as was clearly demonstrated earlier this year. This will be a trap that could catch out unwary market players and commentators. UK GDP Forecasts 2012 - 2015
% YoY 2012E Revised OBR Intellisys (0.1) 0.1 Previous 0.8 0.1 2013E Revised 1.2 0.5 Previous 2.0 0.5 2014E Revised 2.0 1.2 Previous 2.7 1.2 2015E Revised 2.3 1.6 Previous 3.0 1.6

Source: Intellisys
Finally, although we differ from the OBR in the quantum of the growth, we agree on the overall direction and that an economic recovery, albeit anaemic, is underway. It will not be until 2014 at the earliest (i.e., post the German elections) that the Eurozone will begin to recover, which should inject further momentum into the UK recovery because it is a key trading region.

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Economic Comment

05 December 2012

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