As the Chancellor Alistair Darling puts his final touches to the Budget he will be relieved by the recent spate of comforting data.
Last Wednesday we had employment statistics showing that the unemployment was falling.
On Thursday the figures on public finances were far healthier than expected, with the Institute for Fiscal Studies estimating that the level of borrowing for the financial year will come in £12 billion lower than forecast in the last Pre-Budget Report.
Today we had the inflation figures. These show inflation still well above the target at 3%, but falling far faster in February than many had expected.
And the housing market, which in many ways lies behind the woes the economy currently faces, is showing fewer signs of distress, with more stable house prices and house prices rising in some markets, more buyers and sellers coming into the market and repossessions lower than many had feared.
The assessment of the residential information provider Hometrack today is that the improvement in the balance and numbers of buyers and sellers is in part down to growing confidence.
With an economic backdrop more benign than many might have expected, the Chancellor should have both a little more wiggle room and certainly more confidence as he puts together a Budget that is widely seen as more for show and confidence building than for practical purposes.
The central choice he faces, as it is being widely interpreted, is how to strike a balance between the views of those who want more investment to promote growth – here sit most in the construction industry – and those who want a swift reduction in the budget deficit – in particular many in the City who feel the UK’s credit rating would be threatened without “credible” plans for reducing the deficit.
Meanwhile, he must also play to the wider audience – the public. This is after all a General Election Budget and his last best chance to swing voters to the Labour cause.
In reality, for all the relatively good economic news of late, the Chancellor is hemmed in by his forecasts for growth – which many see as toppy. While the latest revisions to GDP saw a slightly stronger rate of growth in the final quarter of last year than was at first thought, there is a long way to go to reach the annual rate of 3.25% to 3.75% by 2011 penned into the Pre-Budget Report.
This suggests that room to expand the capital budget from the drastically cutback figures produced in the PBR is very limited.
Interestingly it does look from the latest public sector finance figures that net investment will probably undershoot figures penned into the PBR by some margin. The 12 months to February saw net investment of £45.3 billion against a budgeted figure for the year to March of £49.5 billion.
You can live in hope that the Chancellor will be confident and generous enough to push this year’s under spent budget into the capital budget for future years, but it is probably not worth holding your breathe in anticipation.
From both the Chancellor’s perspective and that of the construction industry, that the level for 2009-10 will be significantly lower than planned means that the scale of the expected fall going forward will be, in theory at least, reduced.
So what should we expect from the Chancellor? Well, given that the election battle between Labour and the Tories pivots, as much as it does anything, around the investment versus deficit reduction argument we should expect to see the Chancellor play up investment.
Given that he hasn’t that much real cash to play with for direct investment from the Treasury coffers, it would seem appropriate that he bigs up other possible investment strategies.
We should then expect to see him seek to provide some solace to the construction industry through putting more flesh on bones of Infrastructure UK, the establishment of which was announced in the PBR.
Whether he goes further and looks at novel ways to fund social housing, or whether he goes still further and outlines plans for a national investment bank to help to channel more money into capital spending, remains to be seen.