The Budget was a non-event in macroeconomic terms. The Chancellor’s strategy is to allow borrowing to take the strain of a weaker economy this year in the hope that growth rebounds solidly in 2009 and beyond. This may well be appropriate but claims that the fiscal rules are still being met look increasingly untenable.

Key points:

1. The Budget is broadly revenue neutral in 2008/9 but raises £1.9 billion by 2010/11, mostly via increases in alcohol, fuel and vehicle excise duties.

2. Public sector net borrowing is now projected at £43 billion in 2008/9, up from £36 billion in the Pre-Budget Report, reflecting the impact of slower growth and financial market turmoil on tax receipts.

3. General government net borrowing is forecast at 3.2% of GDP in 2008/9 – above the 3% Maastricht treaty limit.

4. Mid-point GDP growth projections have been revised down by a quarter of a percentage point in 2008 and 2009, to 2.0% and 2.5% respectively. 2010 is unchanged at 2.75%.

5. As usual, the claim that the Golden Rule will be met over the cycle relies on a projected sharp improvement beyond the coming fiscal year, based on a rise in the tax share of GDP as well as faster economic growth.

6. One surprise is that net gilt issuance is projected to surge from £29 billion in 2007/8 to £63 billion in 2008/9. As well as higher net borrowing, this reflects a transfer of the Northern Rock loan from the Bank of England to the Treasury and repayment of the Bank’s historical “Ways and Means Advance” to the government.

7. The transfer of the Northern Rock loan is required to comply with EU restrictions on central bank lending to government entities. The loan is projected to fall to £14 billion by March 2009, implying a reduction of £11 billion from its current estimated level of £25 billion. It is striking that even the Treasury, which has every reason to be conservative, projects a significant repayment by early next year.