By Jason Douglas
U.K. Treasury chief Philip Hammond is Wednesday due to lay out the government's first set of tax and spending plans since voters' June decision to exit from the European Union. In a regular "autumn statement" to parliament, the chancellor of the exchequer will offer the first concrete insight into how Prime Minister Theresa May's administration expects the Brexit process to affect the economy, and how it intends to respond. Here are five things to look out for:
The U.K.'s Office for Budget Responsibility is an independent outfit that produces the U.K.'s official economic forecasts. Since those forecasts usually cover the next five years, the agency has the tricky task on Wednesday of predicting where the U.K. economy is headed after the country's anticipated exit from the EU in 2019. That means its predictions for growth and the public finances will depend heavily on its assumptions about the likely hit from Brexit and what the U.K.'s future ties to the EU will look like. Many economists expect Brexit to slow the economy and widen the shortfall between public spending and tax receipts in the coming years, absent some further belt-tightening by the government.
Mr. Hammond has already ditched his predecessor's target of running a budget surplus by 2020. But he has also stressed the need to maintain fiscal discipline in an economy with a government budget deficit close to 4% of annual national income. He has signaled that his solution will be a new, flexible set of fiscal rules to govern tax and spending policy, and provide businesses with some certainty to make plans for the future. Mr. Hammond has said he wants the economy to be "match-fit" for the coming exit negotiations.
Many economists say the Brexit vote is likely to hurt business investment, given the uncertainty surrounding the U.K.'s economic relationship to the EU, its biggest trading partner. Soon after taking office, Mr. Hammond acknowledged this risk and signaled that supporting investment was a priority. Mrs. May, in a speech Monday, went further, confirming the government plans to continue trimming corporate tax rates to encourage companies to hire and invest here.
Mr. Hammond has talked up the need for targeted infrastructure investment to support growth in the short-term and provide a long-term lift to British productivity, which has, since the financial crisis, languished well below its rich-country peers. The Treasury has already announced road and broadband investments but more can be expected.
Assuaging the Anger
The Brexit vote, much like U.S. President-Elect Donald Trump's success in this month's election, was animated in part by a distrust of political elites and a perception that the spoils of growth aren't being equitably shared. Mr. Hammond must therefore help Mrs. May deliver on her pledge to do more for voters feeling left behind by rapid globalization and ignored by the London establishment. The Treasury early Thursday trailed that a package of measures targeted at working families will be included in the autumn statement, including a home-building project and a higher national minimum wage for workers over 25.
Write to Jason Douglas at firstname.lastname@example.org
(END) Dow Jones Newswires
November 23, 2016 01:14 ET (06:14 GMT)
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