Key measures of interest to everyone

• This was a clever budget which made the most of very difficult circumstances. The Chancellor largely avoided the temptation to bribe the voters with their own money. There was a package of tax cuts and spending increases amounting to about £2.8bn in 2010-11, but these were partly offset by various tax rises, leaving only a modest giveaway of £1.4bn.

• Moreover, the Chancellor was able to forecast stronger than expected tax receipts and lower unemployment. Consequently, he reduced his forecasts for public borrowing by more than had been widely expected. Over the six year forecast period, borrowing will now be a cumulative £55bn lower than predicted in last year's Pre-Budget Report.
• This represents a victory for the Chancellor over the Prime Minister who, by all accounts, would have wanted to spend the receipts on various pre-election goodies. It also means that the Budget was a favourable surprise for fixed interest rate markets, and for all those at home and abroad who are worried about the UK's debt position.
• But in truth the improvements are very marginal and the key factors which will determine what happens to the borrowing requirement in practice remain a serious concern. The first of these is the pace of economic recovery. The Chancellor downgraded his forecast for growth next year by 0.25%, but at 3-3.5% it remains heroically high.
• And for the following years he made no adjustment at all to the forecast of 3.25-3.75%, which has long seemed to us to be extremely optimistic. Consumers are in no position to be increasing their spending and companies are unlikely to be keen to increase their investment. Lower sterling should help net exports in time but recent signs have not been encouraging and the Treasury seems to be very optimistic in forecasting that exports will increase by around 3% in 2010 and 4.25% in 2011.
• Second, one of the leading factors which concerns foreign investors in the UK is the Government's exposure to the banking sector through its various holdings and guarantees. Although recent banking results have been better, the uncertainties over the worth of the Government's holdings, and the extent of its liabilities should things go wrong, are enormous. A further downturn in the economy, recognition of the true state of commercial property portfolios and/or further weakness in residential house prices could see the Government's true net asset position looking a lot worse.
• Third, the Government has still put to flesh on the bones of it's plans to cut Government spending. In the absence of such detail the markets have little reason to find the Government's numbers plausible.
• So this was an exercise in shadow-boxing. To be fair, it was done well. But we all know that the real budget will come after the looming election, and that this will involve much more pain - whoever wins.