Britain’s new chancellor has quickly gained the nickname “Spreadsheet Phil” with his eye for detail and dull demeanour. A safe and steady pair of hands is just what the UK needs after George Osborne’s tenure. Philip Hammond delivered a commendably dull Autumn Statement against a difficult backdrop.
The statement comes with overwhelming detail. The statement itself (the document, not the speech) runs to 71 pages. This is brief compared with the Office for Budget Responsibility (OBR)’s 271-page Economic and Fiscal Outlook. And this is before the many official supplementary reports and the media over-kill.
However, the key message is that growth will be slower, inflation higher and government borrowing greater than expected in March, as these two charts illustrate.
The first shows the forecast profile of quarterly growth now compared with that in March. Previously, the OBR expected growth to continue at around 0.5%-0.6% a quarter pretty much indefinitely; now, it thinks growth will dip to around 0.25% a quarter in the first half of 2017. Brexiteers have immediately accused the OBR of excessive pessimism but the OBR is more optimistic than independent forecasters and it sets out its reasons in detail in its report.
The second shows that Britain’s public sector borrowing figures are projected to stay higher for longer than previously thought. The deficit this year (FY16-17) will be £68bn rather than £55bn and next year £59bn rather than £39bn. The deterioration comes from three key sources – a) technical changes in ONS statistics, b) policy changes and c) the weaker economy.
The third of those is by far the biggest factor. Taking FY17-18, for example, the technical changes account for £0.4bn of the deterioration, Philip Hammond’s actions for £2.5bn and the economic forecast for £17.2bn. By the way, the £2.5bn “give-away” consists of a large increase in capital spending, a smaller increase in day-to-day departmental spending and a small tax increase.
There were two major talking points. One was the impact of Brexit. The OBR assumes that the UK leaves the EU in April 2019 and that this will mean slower trade growth, a tighter migration regime, lower EU transfers but higher domestic spending (probably not £350m a week to the NHS) and no change in EU-related tax systems (such as VAT). The result is that the level of UK real GDP is 2.3% lower by FY20-21 than it would have been otherwise and that Britain’s public finances will be £10bn worse off in FY17-18 and £15bn a year thereafter.
The other was fiscal rules. George Osborne unveiled three in May 2015: none of them survived 18 months. Philip Hammond introduced another three yesterday. The structural deficit should be below 2% of GDP by FY20-21; net debt as a percent of GDP must fall by FY20-21; welfare and tax credit spending should be not more than £130bn in FY21-22. None of these is especially demanding. The worrying question is whether Mr Hammond has much interest in reducing the UK’s budget deficit to a reasonable level. Perhaps he is not so dull after all.
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