There has been a great deal of speculation about what new chancellor Philip Hammond might say when he stands up to deliver his first Autumn Statement in the aftermath of the summer Brexit vote to leave the European Union.
This will be the new UK government’s first opportunity to outline its fiscal plans as the UK gears up to adapt to the prospect of some economic disruption in the lead up to and following the potential triggering of Article 50 in March next year.
Since the vote the UK economy has held up much better than the majority of economists and analysts had predicted, posting an economic expansion of 0.5% in Q3. Some of the more pessimistic forecasts were predicting a much poorer number, and as such the expectation was such that the chancellor’s reaction to the referendum shock might involve some hard choices between raising taxes and cutting spending.
As it is the Mr Hammond’s fiscal room for manoeuvre remains fairly small given that the budget deficit still remains quite large and the national debt continues to increase. That doesn’t mean he won’t do anything; he has shown flexibility in the context of dropping George Osborne’s pledge to balance the books by 2020.
In recent weeks the economic narrative does appear to be shifting in the context of central bank policy, away from the monetary side to the fiscal side, and now that we’ve seen the Heathrow expansion get approved and the UK government persuade Nissan to commit to the UK on a long term basis, we could get further details on future government policy with respect to important infrastructure spending on roads, rail and airport capacity.
There is an urgent need for additional airport capacity at regional airports as well as improving transport links in the north of the country.
With a new runway at Heathrow unlikely to be delivered before 2025, the government needs to look at quick wins designed to deliver results by the end of the decade, which means we could well see the announcement of measures designed to boost economic activity in the other parts of the country, particularly in the north.
The chancellor has in the past expressed frustration at the UK’s planning system, which suggests he could look at implementing some changes there, while he could also look at easing the burden with respect to business rates, which have gone up quite sharply this year.
Ultimately this month’s Autumn Statement is likely to be viewed as a statement of intent rather than a game changer in terms of how the government manages the UK economy. The resilience seen in the economy since the vote has certainly given Mr Hammond a lot more room for manoeuvre than would have been the case a month ago, but it will still be an important barometer of the type of chancellor he intends to be.
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