By Simon Miller
The UK is to sell an extra £11.4bn of gilts following the revised outlook for the economy.
In its November 2011 Economic and Fiscal outlook, the Office for Budget Responsibility (OBR) revised the forecast for the 2011-2012 central government net cash requirement to £135bn, an increase of £14.6bn from the budget 2011.
As a result, the net financing requirement (NFR) – which incorporates the CGNR was increased from £178.5bn from the projected £164.7bn in April 2011.
Due to the revision the Debt Management Office’s financing remit for 2011-2012 has been revised with gross gilt issuance projected to rise by £11.4bn to £178.9bn and Treasury bill issuance is projected to increase by £2.4 billion, taking the planned end-year Treasury bill stock to £63.2 billion.
The split of gross gilt issuance by maturity in 2011-12 will remain broadly unchanged. It is anticipated that:
• short maturity conventional gilt issuance will increase by £3.2 billion to £60.6 billion (33.9per cent of total issuance);
• medium maturity conventional gilt issuance will increase by £5.1 billion to £39.8 billion (22.2 per cent of total issuance);
• long maturity conventional gilt issuance will increase by £2.1 billion to £39.5 billion (22.1 per cent of total issuance); and
• index-linked gilt issuance will increase by £1.0 billion to £39.0 billion (21.8 per cent of total issuance)
The OBR outlook said public sector borrowing was going to rise by £158bn this year while debt is set to peak at 78% of GDP in 2014/2015. They expect GDP in Britain to grow this year by 0.9% – and by 0.7% next year with growth reaching 3% by 2015.
In addition, the current structural deficit is forecast to fall from 4.6% of GDP this year to a current structural surplus of 0.5% in five years’ time.
In his Autumn Statement, the Chancellor of the Exchequer George Osborne said that events in Europe and the UK had left him with little headroom to manoeuvre. Yet, he still maintained the country was heading on-target for growth by 2016.
However, he added: “But if the rest of Europe heads into recession, it may prove hard to avoid one here in the UK. We are now undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis.”