Budget 2015.

18th March 2015

Ian Copelin, Investment Director, my wealth comments: “The Chancellor of the Exchequer, George Osborne, stood up in Parliament earlier today and unveiled his final Budget of this Parliament, ahead of the General Election in a little over seven weeks’ time.

There was all the usual media hype ahead of the annual Budget Statement, but given finances are still very tight thanks to the large budget deficit the Budget Statement was always going to focus more on his record to date as Chancellor, rather than detailing many election giveaways – anything else would not only have compromised his fiscal prudence but also that of the Conservative Party’s election message that the economy is safer in their hands and their slogan “let’s stay on the road to a stronger economy”.

Although George Osborne has form at producing surprises, much of today’s announcements had already been leaked, such as their promise for 200,000 discounted homes for first-time buyers. Consequently, it was one of the dullest Budget Statements that I have watched (especially given it is a pre-election budget, which have traditionally had some ‘giveaways’ as they are aimed at retaining power), as George Osborne simply tweaked income tax allowances along with fuel and beer duty.

However, today’s excitement will come this evening when the US Federal Reserve Chairwoman, Janet Yellen, holds a press conference immediately following the Federal Open Market Committee (FOMC) meeting to decide US interest rates. While US interest rates are expected to remain unchanged at 0.25%, it will be Janet Yellen’s comments regarding forward guidance – and in particular the use of the word ‘patient’ – that is of interest.

If ‘patient’ remains, Janet Yellen will effectively be stating that US interest rate will not rise for at least the next two FOMC meetings, taking a June rate rise off the table.

Whilst the market consensus is split between a US interest rate rise in either June or September, I still believe that Janet Yellen will err on the side of caution due to the risk of raising interest rates prematurely – especially as inflation is below the Fed’s mandated 2% target (and has been since July 2012), wage inflation remains lacklustre and the recent dollar strength will not only further reduce inflation but will also slow the US economy.”