For post-Brexit Britain, this Week Seems to be Crucial

When the U.K.’s Chancellor Philip Hammond presents the government’s first “Autumn Statement” on the state of the economy after the Brexit vote, he will be in the spotlight on Wednesday.

For clarity on what the government’s economic plans are after the decision to leave the EU, analysts will be poring over Hammond’s speech.

“It’s normally an important fiscal event…But this year it’s even more significant because of the uncertainties surrounding the (Brexit) referendum,” Philip Shaw, chief economist at Investec told the media.

Phillip Hammond, who replaced George Osborne as Chancellor in July and it is also the first Autumn Statement delivered by him. Osborne has said there would be a “fiscal reset,” Shaw noted.

Analysts foresaw an economic contraction for Britain, both in the short- and medium-term when in last June, when British voters decided to give up on its membership of the European Union. However growing 0.7 percent and 0.5 percent in the second and third quarters of this year respectively, the economy has proven more resilient than originally expected.

“Absent a sharp slowdown, we are sceptical about the case for a short-term fiscal boost, particularly with a starting point where the economy is at full employment. But we see better case for more sustained support to offset the Brexit drag,” Morgan Stanley said in a research note last week.

“We will not see a major fiscal stimulus, it will be moderate,” Kallum Pickering, U.K. economist at Berenberg said.

He added that there would be “modest cuts and modest infrastructure investment.”

With an added £4 billion per annum in additional stimulus. Government borrowing should go up by £98 billion, the government could announce as much as £80 billion ($98.7 billion) to boost public finances according to Morgan Stanley.

“We expect the Autumn Statement to focus on infrastructure investment, although Chancellor has indicated a number of times that he will be keeping a close eye on fiscal prudence,” PwC said in a note.

Support for infrastructure investments, including road and railway projects, would be included in Chancellor Hammond’s strategy. Neil Broadhead, head of UK capital projects and infrastructure at PwC, said that “small schemes” which are “easier to implement and bring benefits, which can be felt by people sooner cross the whole country” is essentially what Hammond will look for.

Whether Number 10 would try to attract businesses by lowering its corporate tax rate is the question that had been started to be asked by analysts after the Brexit vote. Hammond told ministers in Brussels that he would not pursue a pledge by his predecessor to bring down corporate tax to 15 percent according to the Financial Times.

“The rate’s unlikely to be cut below the 17 percent target set out. While going further would send a signal to the outside world that the U.K. is well and truly open for business, it would not play well with the public,” Mike Cooper, tax partner at PwC said in a note.

Hammond has promised to improve housing and is another key issue. To support the construction of thousands of new homes, he unveiled a £5 billion stimulus earlier last month.

“If it was an easy problem, we’d have solved it by now,” Shaw from Investec said.

(Adapted from CNBC)

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Categories: Economy & Finance

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