Rathbones' Smith: Lower growth and tight fiscal policy are here to stay
Uncharacteristically, the Chancellor delivered a Budget that took the savings accrued from the better than expected revenues of the last two years and reallocated them to future spending. By the end of the current Parliament, the Government will spend an additional £17.9 billion but will raise an additional £280 million in taxes. Remember, however, that this is relative to the spending plans already set out. Mr Hammond proclaimed that austerity is coming to end. But this is just rhetoric and the politically-neutral Office for Budget Responsibility’s report tells a different story.
At best, one could say that fiscal policy won’t be getting any more austere in 2019-20, but the independently verified numbers clearly show that ‘the cyclically adjusted current budget deficit’ – day-to-day net spending adjusted for pulse of the business cycle and the standard international gauge of fiscal thrust or drag – will tighten again from 2020-21. As a result, we are not changing our outlook for the UK economy. Lower growth and tight fiscal policy are here to stay.
Ed Smith, Head of Asset Allocation Research
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