UK FISCAL: Military spending unlikely to impact UK finances in the short-term
Feb-19 11:59
Over the past few days there has been increasing focus on European nations increasing military spending - partly in response to demands from President Trump that Europe pays its own way in defence, and partly as the potential for an end-game in Ukraine comes into view. Prime Minister Starmer has committed to increase the UK's military spending to 2.5% of GDP (which would be somewhere in the region of a GBP5bln/year increase - but there is still no firm commitment on when we get to 2.5%. However, this may not really impact near-term fiscal matters (dominated by the upcoming OBR forecast update (EFO) due on 26 March) because:
- You can't really immediately increase the number of recruits - you need to be able to have people to train them etc. So this has quite a lag before you can really spend money.
- It takes time to procure things like helicopters, tanks etc. And the companies you are buying these from have long time horizons, so it's hard to spend that money quickly too.
- There's not much point in having troops if they don't have enough munitions etc (a solder whose not able to fire a gun can't really do much).
- We're in a bit of a waiting pattern ahead of both the strategic defence review and the multiyear spending review so its hard to really get any firm commitments on spending at present.
- There is an outside chance this gets announced before 26 March (note that the OBR is due to deliver its second iteration of forecasts to the OBR). And Chancellor Reeves' rhetoric is softening recently regarding whether there will be no fiscal announcements alongside the new forecasts.
- The funding measures under consideration seem to focus on adding extra years to the planned income tax freezes (due to end in 2028 currently), tweaks to cash ISA (tax free savings accounts) and there has been increasing discussion of whether there will be more tweaks to corporate tax rates.
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US TSYS: Modestly Cheaper To Start Inauguration Day
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EURIBOR OPTIONS: Large Call Condor is bought for more
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OUTLOOK: Price Signal Summary - Resistance In Gold Remains Exposed
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- In the oil space, the trend structure in WTI futures remains bullish and the Jan 15 rally reinforces current conditions. The recent strong impulsive climb has resulted in a breach of $75.91, the Oct 8 high. Attention is on $79.48, the Apr 12 ‘24 high. A clear break of this hurdle would strengthen the bullish theme and open 80.63, a Fibonacci projection. On the downside, a reversal lower would expose the 20-day EMA, at $73.89, a key short-term support.
