Economic Weekly by Lloyds TSB

Budget 2009 provides the highlight of a busy week in the UK, with the preliminary estimate of Q1 2009 GDP, the latest inflation and unemployment figures and the minutes of the April BoE MPC meeting also due.

Budget 2009 to show sharply higher public borrowing

Budget 2009 provides the highlight of a busy week in the UK, with the preliminary estimate of Q1 2009 GDP, the latest inflation and unemployment figures and the minutes of the April BoE MPC meeting also due.

 With the economic backdrop facing the UK much worse than anticipated by the Treasury at the time of the Pre-Budget Report in November, we expect sharp downgrades to GDP growth and public sector borrowing forecasts in Budget 2009 on Wednesday. Although the Chancellor is understandably hampered in terms of the corrective measures he can take at this stage, financial markets will still be keen to hear his plans for ensuring medium term sustainability of the public finances.

 Bond markets, in particular, will also be prepared for a sharp hike in the government’s borrowing requirement. Specific measures in Budget 2009 are likely to be relatively small, primarily aimed at helping the unemployed and smaller companies affected by the recession.

Data in the US this week are expected to show the housing market remains fragile, with falls in both existing and new home sales in March. While we forecast modest improvements in a series of key surveys in the euro zone, economic growth is still falling. Canada and Sweden may announce the start of quantitative easing this week.

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