UK Chancellor's Autumn Statement
On 23 November, the UK’s Chancellor Philip Hammond delivered his Autumn Statement, providing a vital update on the state of the economy following the UK’s vote to leave the EU earlier this year. In this article, we have outlined the key economic announcements.
The UK Chancellor unveiled a new set of fiscal rules in his Autumn Statement, designed to ensure that the UK Government will be able to respond to any economic fall-out as Britain’s exit from the EU is negotiated.
The rules effectively get rid of rigid targets, so that the Government has greater flexibility to react to potential economic shocks1. This approach should take some pressure off monetary policy at the Bank of England, and allow stimulus and the deficit to rise if growth is hit in the wake of Brexit.
The state of the economy
At present, the rate of economic growth in the UK remains relatively robust, with official figures showing that the economy grew by 0.5% in the third quarter of the year2.
The Office for Budget Responsibility (OBR), the Government’s tax and spending watchdog, has therefore upgraded its 2016 growth forecast to 2.1%, up from its 2.0% projection given in the March Budget.
The OBR’s growth projection for 2017, however, has been downgraded from 2.2% in March to 1.4%, which the Chancellor attributed to weakening consumer demand and higher inflation due to sterling’s depreciation.
The OBR forecasts growth of 1.7% in 2018, 2.1% in 2019 and 2020, and 2% in 20213.
Public-sector borrowing fell in October, according to figures released by the Office for National Statistics the day before the Autumn statement, dropping to £4.8 billion, down from £6.4 billion a year ago, making it the lowest October deficit since 20084.
Despite this fall, the OBR has raised the borrowing forecast it made in March from £55.5 billion to £68.2 billion for this year, and up from £38.8 billion to £59 billion for next year.
The OBR predicted in March that Government borrowing would fall to £21.4 billion in 2018-19 and would then reach a surplus of £10.4 billion in 2019-205. The Government is no longer seeking a surplus that year, with the OBR now forecasting borrowing of £46.5 billion in 2018-19, £21.9 billion in 2019-20, £20.7 billion in 2020-21, and then £17.2 billion in 2021-226.
Debt is expected to increase from 84.2% of GDP last year to 87.3% this year, and peak at 90.2% in 2017-18.
The Chancellor highlighted a ‘productivity gap’ between British workers and their European counterparts, and announced a £23 billion package for innovation and infrastructure over the next five years to help reduce this gap. By 2020, an extra £2 billion per year will be spent on research and development funding.
The Government plans to spend between 1% and 1.2% of GDP on infrastructure by 2020.
The Chancellor had already announced that £1.3 billion would go towards tackling traffic on Britain’s roads. Around £1.1 billion will be spent on upgrading local roads and public transport and reducing congestion, while another £220 million will be used to ease traffic “pinch-points”7 on strategic roads.
The Chancellor confirmed he intends to stick to a plan to cut the current rate of corporation tax to 17% by April 2020, down from its current level of 20%. This was previously announced by his predecessor George Osborne in the March Budget.
The Government announced a new £2.3 billion housing infrastructure fund in areas of high demand for new homes, along with plans to spend £1.4 billion on delivering 40,000 new affordable homes in England.
It has already introduced a £3 billion housing fund to “get Britain building” which will help small family businesses build 25,000 new homes by the year 2020, and up to 225,000 over the longer term8.
The Chancellor also pledged that the Government will spend more than £1 billion to ensure homes and businesses can access faster broadband speeds.
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1 FT Adviser, Devilish details of Autumn Statement 2016
2 The Guardian, UK economy shrugs off Brexit uncertainty with 0.5% growth
3 Bloomberg, U.K. Cuts 2017 Growth Forecast and Plans to Increase Borrowing
4 The Telegraph, UK borrowing shrinks in October ahead of Autumn Statement as Dow Jones closes over 19,000 for first time
5 UK Treasury, Budget 2016 Policy Paper
6 Reuters, Chancellor Hammond delivers Autumn Statement on budget policy
7 The Telegraph, Autumn Statement: Britain’s roads to get £1.3bn investment to tackle congestion
8 The Telegraph, Autumn Statement 2016 summary and highlights: Everything you need to know
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