By Julia Kollewe
LONDON (MktNews) - The UK budget for 2001 leaves room for further interest rate cuts in coming months, but a move on Thursday still seems very unlikely, analysts said Wednesday.
Analysts said the budget was much as expected, with little change in the public finance projections, apart from the obvious revision to this year's surplus.
Chancellor Gordon Brown announced that public sector net borrowing would show a surplus of Stg16.4 billion this year, up from the Stg10.1 billion forecast in November's Pre-Budget Report (excluding windfall tax receipts).
"It strikes me that there haven't been any huge giveaways ... There is very little change from the picture in the Pre-Budget Report," said Mark Miller, UK economist at Morgan Stanley.
Consequently, there is "very little that will prevent the BOE from cutting rates" in future months, Miller concluded.
Chief economist at Societe Generale Brian Hilliard echoed his remarks. "Beyond the obvious revision to the fiscal year just ending (PSNB surplus), he hasn't made many changes," he said. "The BOE should not respond to it."
He thinks it unlikely the BOE will cut rates on Thursday as the economy remains in pretty good shape. Hilliard noted that Brown had not downgraded his growth forecast for this year, leaving it at 2.25-2.75%.
Some analysts also pointed out that Brown had revised up significantly his forecasts for household spending, namely to 3.25-3.5% for this year from the 2.25-2.5% projected in the Pre-Budget Report.
"This will underscore upside risks in terms of domestic demand," said Ian Stewart, chief economist at Merrill Lynch. He said there is a "strong reason for believing (economic) growth is not going to slow sharply in the UK and interest rates are not going to collapse."
He is expecting a "modest slowdown in (economic) growth" accompanied by a modest easing in interest rates.
Senior UK economist at RBS Geoffrey Dicks's take on the budget was "all in all a bit toppy".
He said, "It makes it very difficult for the MPC to do anything tomorrow" and the next rate move will be contingent on rate cuts by the US Federal Reserve or the European Central Bank.