There is precious little to say about the Budget. That is not necessarily a bad thing, but in the absence of any ideas about anything, Philip Hammond at least resisted the temptation to pretend that he was terribly busy by fiddling with everything. Another way of looking at it, so others tell me, is that the government has no policies and no ideas. How very unfair of them. 
Instead, I am going to pick up the OBR’s economic forecasts. The Office for Budget Responsibility. It is a weird creature. It won last week’s headlines for its miserable economic forecasts of 1.3 per cent GDP growth, or thereabouts, for as far forward as it can see. Thanks. That gave Hammond an unmissable opportunity to talk down the economy and the country. One, to his credit, that he took with both hands. There is a cunning plan in there somewhere, and I am still looking for it.
Why does the OBR make economic forecasts? Let’s ignore for the moment the unshakeable truth that all forecasts tend to be rubbish. More importantly, should we worry about why the chancellor believes that the Bank of England’s forecasting ability is so hopeless that he has to do his own? If that is the case, why does the Bank have the power to set interest rates based on a set of assumptions that the government believes are so untrustworthy it refuses to use them? It is surreal.
Whether we take the OBR’s numbers or the Bank of England’s slightly less depressing guesses at GDP growth, the point I want to make is how much worse the UK is doing than Europe. I take a deep breath and again avoid all temptation to rant about Brexit (it gets more and more difficult…maybe in the New Year); however, last Thursday the eurozone reported its best manufacturing performance and fastest rate of job hiring since the peak of the dotcom boom in 2000. Wow. And wow again.
Is this the sting in the tail of QE? We have argued for years that zero interest rates have discouraged investment by creating the psyche that any return above nothing, no matter how small, is worth having. It has stopped business and investors taking risk.
Mark Carney talks about capacity constraints in the UK when justifying raising interest rates. He has blamed Brexit, which almost certainly has had an effect, but it has only exacerbated a problem started by QE. The problem of underinvestment. The same is now being seen in Europe, where capacity constraints are forcing up both prices and wage costs (according to Markit Economics, the compilers and publishers of the monthly Purchasing Managers Indices).
It is unlikely that the United States has escaped. We and others have reported, again for years, about how the hand-outs from QE have been used to fund share buy-backs, rather than for investment. The stock market has boomed, executives have become generationally rich, but has this been at the expense of the economy?
There are straws in the wind that the pace of investment in the United States has started to pick up, notably in factory orders and core capital goods. It may be coincidence that this is happening as the Fed raises interest rates and talks openly about the risk of more. Or it may not. Rising interest rates are a sign of confidence in the economy, and maybe a signal of higher returns to come. The threat of even higher rates may also encourage companies to invest sooner rather than later.
Psychology is a funny thing, Mr Hammond. When a public figure as authoritative as the chancellor says that the economy is in a pickle, it matters. Whether or not it is actually true is by the bye, but his comments last Thursday will discourage investment. People believe men in white coats carrying clip boards.
Jim Wood-Smith is chief investment officer, private clients at Hawksmoor Investment Management. The views expressed above are his own and should not be taken as investment advice.