Autumn Statement: What the City expects


The Treasury has said Hammond will set out a new fiscal framework to give the government flexibility to respond to changing economic conditions and the need to invest in the economy’s productive capacity.

Here’s a look at what investors and analysts in the City and beyond are expecting.

Trevor Greetham, head of multi asset at Royal London Asset Management
“Now is the time to reset fiscal policy and the focus should be on boosting nominal growth to offset Brexit uncertainty rather than trying to deliver ‘austerity-lite’.

Going for growth should reduce the debt burden over time as the government can borrow money in the gilt market at a cost of 1-2% per annum and invest in an economy with long term growth potential of four. The government should counteract the lack of private sector investment since the financial crisis by improving transport infrastructure, housing and power generation while continuing to support research and new technology.

Contrary to popular opinion, governments can borrow their way out of debt if interest rates are low enough – or ‘save’ their way deeper into debt if austerity causes the economy to weaken.”

Sonali Punhani, research analyst at Credit Suisse
“We expect the Treasury to announce a new set of fiscal rules. The substantial tightening of fiscal policy set out in the March budget looks inappropriate and unachievable in the current environment. We expect the Treasury to reset fiscal policy, scrapping the previous budget’s target of reaching a surplus by 2019/20 and aiming to achieve a balanced budget in the next parliament.

“It is widely expected that the Chancellor will adopt a new flexible fiscal framework. Instead of having rigid deficit targets, which the government has failed to meet in the past, the Treasury is likely to be flexible and allow the headroom for additional stimulus if growth is hit by the Brexit vote. Thus there is likely to be room for the deficit to rise if the growth data warrant it.”

Economists at Capital Economics
“The rumour mill has been a little quieter than usual. But the Chancellor is surely piecing together a package of giveaways for his Autumn Statement – perhaps something in the region of about £7 billion in 2017/18 – which focuses on increased infrastructure spending, boosting business investment and targets households who are set to feel the pinch from rising inflation. Admittedly, given the previous plans for a large fiscal tightening, this wouldn’t amount to an outright loosening of fiscal policy. But the drag from fiscal policy in 2017/18 would still be less than both that expected in the Budget and that in 2015/16 and 2016/17.”

Howard Archer, chief UK and European economist at IHS Global Insight “Despite the economy’s current resilience, Mr Hammond has stressed that the economy is likely to face difficult times ahead – so he is likely to provide some support now and to build-in scope for increased fiscal support over the lifetime of this parliament if need be.

“The May-led government has already made it clear that it has abandoned George Osborne’s target of achieving a surplus in 2019/20 as it “re-sets” fiscal policy.

“Nevertheless, the Chancellor’s room for manoeuvre is limited by the weakened state of the public finances, and the desire of the government to be seen to be fiscally responsible.”

Brian Hilliard, chief UK economist at Societe Generale
“Mr Hammond’s first fiscal statement is likely to be a muted affair. The GDP growth forecasts will be revised downwards. As a result of that and the poor fiscal performance so far this year, the budget deficit targets should be revised up significantly from £55 billion to £67 billion and from £38.8 billion to £54 billion for 2016-17 and 2017-18. The overshoot and the lower growth path will imply a higher debt path. The Chancellor will retain a commitment to bring down the debt to GDP ratio but will back-load the austerity necessary to achieve it. He is likely to announce a new, more flexible, set of fiscal rules to give himself the ability to do that. We expect only a small boost of less than 1% of GDP in the form of infrastructure spending.”

Quentin Fitzsimmons, portfolio manager at T Rowe Price
“Hammond previously expressed his willingness to borrow ‘when the cost of money is cheap’, an indication that the UK government is prepared to accept an increase in the budget deficit in order to spend more on infrastructure and public services. As bond yields are at near-record lows, the timing would seem to be right for the government to embark on a major spending programme.”

• A version of this article appeared on WSJ City, a made-for-mobile app that combines the best of the Wall Street Journal and Financial News, tailored for an audience in the City of London. Download here

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