The spring statement – unsurprisingly overshadowed by Brexit uncertainty
Usually the Chancellor of the Exchequer’s spring statement is an important event in the UK political calendar, albeit one downgraded in recent years now that the full budget comes in the autumn.
However, all the Brexit chaos quite overshadowed Philip Hammond’s comments yesterday. The extraordinary events surrounding Theresa May’s massive defeat in Tuesday’s second ‘meaningful vote’ on our departure, inevitably cast a long shadow and leant nuance to the Chancellor’s calls for a consensus to offer a softer vision of our future relationship with the EU.
What the statement itself did reveal, however, was a material improvement in the public finances and a slightly less severe downgrade to economic growth than some had anticipated. It also included a larger-than-expected contingency fund of ￡26.6bn available to the government to mitigate the effects of Brexit and to begin the relaxation of austerity, once a final deal is reached (an increase from ￡15.4bn in the autumn).
Other announcements included:
- GDP growth was forecast to reach 1.2% in 2019/20 (down from 1.6% in the autumn budget), 1.4% the next year (2020/21) and then 1.6% for each of the three subsequent years
- The UK budget deficit was forecast to fall progressively from ￡29.3bn in 2019/20 to ￡13.5bn in 2023/24; this represents a debt to GDP ratio of 73% by the end of the forecast period
- Real wages were forecast to grow 3% in nominal terms in each of the next five years compared with inflation at 2%
- As is now customary in spring statements, there were no new taxation measures, although the Chancellor pulled a few spending pledges out of the hat, amongst which: ￡100m to the police to help tackle knife crime, ￡260m extra for development funding in the borders between Scotland and England, free sanitary products for secondary schools, and a ￡3bn affordable homes guarantee scheme aiming to add 30,000 new low-priced homes
- The Competition and Markets Authority has been asked to open an inquiry into potential market dominance in digital advertising (perhaps less aggressive than some had thought likely)
- Moves to make assessment of company payment terms mandatory for all firms’ audit committees
- Measures were also announced to:
- Improve access to green energy and reduce the carbon footprint of new housing by 2025, and allow greater flexibility to passengers to offset their carbon impact in the aviation industry
- Boost infrastructure through releases from the already announced ￡37bn National Productivity Fund; this would also include funding for a large extension to apprenticeships and the rollout of the new ‘technical’ secondary school qualifications
- Make full fibre broadband provision across the country by the end of 2033
- Reinforce protection of biodiversity in the UK.
All of this was to be expected and seemed relatively mundane, given the dramas of the previous 24 hours. However, the Chancellor’s speech is likely to be remembered far more for his call across the political divide - to the Labour backbenches to come together with like-minded colleagues elsewhere in the house, to deliver a soft Brexit. This is a move many have interpreted as a coded bid to undermine the Prime Minister’s take-it-or-leave-it strategy to the deal she has struck with the EU.
Philip Hammond made clear, all his forecasts and spending pledges – and in particular the ￡26.6bn ‘deal dividend’ – are contingent on passage of the deal. If not, all bets are off: the end to austerity, growth in the economy and real wages, improvements in the public finances, and lasting short and medium-term damage to the UK’s standing in the world.
It was very much as if the Chancellor were playing first fiddle in the band on the Titanic as it ploughs full ahead towards the iceberg. Keep the numbers coming until we know whether we’ll sink or swim, because ultimately, this spring statement said little of significance about the real future direction of the economy. Everything depends on Brexit and the end game to be played out in these coming days and weeks.
As ever, our clients can expect us to keep a very close eye on political developments and the currency markets. With our depth of analysis and actively managed approach, whichever Brexit scenario ensues we will be there to guide, support as well as seek out investment opportunities.
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IMPORTANT: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.