Spring Statement 2018: Reactions from investors, economists and experts across the City and beyond

Is there really light at the end of the austerity tunnel, as the Chancellor claims? Economists aren't sure

Josie Cox
Business Editor
Tuesday 13 March 2018 14:39
Spring Statement: Forecast economic growth for 2018 revised up from 1.4% to 1.5%

Philip Hammond has used his Spring Statement to marginally revise up the Government’s growth forecast and announce that public sector net borrowing will be lower than previously expected this year.

The Chancellor also unveiled changes to the timing of business rates revaluations, he committed to investment in affordable housing, and he reiterated his focus on promoting small businesses and entrepreneurs.

But is there really light at the end of the austerity tunnel, as he claims?

Here’s how experts from across the financial and investment community have responded.

Lucy O’Carroll, chief economist at Aberdeen Standard Investments

“The Chancellor was always clear that today’s event was to be a modest one, and he kept that promise. But there is little to cheer by way of economic progress. A woeful growth outlook by past standards. Potentially massive dislocation for the economy just around the corner. And all subject to huge, Brexit-related uncertainties.

“Mr Hammond was keen to push a message about there being light at the end of the tunnel. It’s true that the country’s debt burden is about to fall. It’s also true that for the first time since the financial crisis the UK is borrowing only to invest, rather than to fund day-to-day spending.

“But the Chancellor has made it clear that we’ll remain in the tunnel for a while yet: there will be no fundamental reassessment of the UK’s spending needs until 2020. That will mean, in effect, a decade of austerity – unprecedented in the post-war period.

Keith Wade, chief economist at Schroders

“For what was meant to be a simple economic statement, the Chancellor turned much of the first Spring Statement into a political opportunity to have a dig at Labour with barbs about red books and oncoming trains.

“Certainly he did have an opportunity to unveil stronger growth for this year alongside a forecast of UK inflation falling back to target by the end of the year. Government borrowing has returned to surplus, excluding investment, and debt is set to peak. All good news.

“However, much of this was anticipated and it is still fairly cautious with only a modest upward revision to growth of 0.1 per cent to 1.5 per cent this year. We should not be surprised: it’s too early in the political cycle for anything more bullish and the Chancellor himself said that forecasts are there to be beaten.

“No mention though of the UK being the weakest economy in the G7 at a time when the rest of the world is booming. We welcome the initiatives on housing and training, areas key to getting productivity back on track and boosting long-run growth.”

Hetal Mehta, senior European economist at Legal and General Investment Management

“The Chancellor of the Exchequer has long been keen to have only one major fiscal event a year and today’s Spring Statement was just that – a statement of the latest borrowing and growth projections without any fanfare, or new policy announcements. And yet, he had a small spring in his step (excuse the pun!).

“After significant downgrades to growth and upward revisions to borrowing requirements just in November, the Office for Budget Responsibility has now revised up growth (for the near term) and taken down the borrowing forecasts over the next 5 years.

“That said we don’t expect Hammond to go on a spending splurge in the Autumn Budget. He will likely save the extra room for manoeuvre ahead of the next election to cushion any downside risks emerging from the UK’s departure from the EU.”

Dean Turner, economist at UBS Wealth Management

“As expected, the first Spring Statement has been relatively light on new announcements. On most metrics (borrowing, debt, growth and inflation), the Chancellor delivered better news on the outlook, but the improvements were marginal.

“Though he emphasised his ongoing ‘balanced’ approach to the public finances, we will have to wait until the autumn before there is any meaningful change to public spending. Moreover, any adjustments are still likely to be modest, and are contingent on the economy continuing to grow.

“As the global growth backdrop holds firm, and with progress on a Brexit transition deal potentially announced next week, we believe downside risks to growth in the short term are limited.”

Ian Stewart, chief economist at Deloitte

“Spring has come early for Mr Hammond. Just four months on from a notably gloomy Autumn Budget, the Chancellor has been able to unveil higher growth forecasts and declare victory on key measures of deficit reduction. A global recovery, resilience in UK activity and a surprise pickup in UK productivity have all helped.

“These forecasts put the UK in a better position to face the moment of truth on Brexit. The decision phase of the Brexit talks will shortly be upon us. Stronger public finances give Mr Hammond more firepower to support the economy if the Brexit talks don’t go according to plan.

“We should not get carried away. These forecasts are likely to be no less fallible than earlier ones and, despite an improving trend in public borrowing, the burden of debt in the UK is still at its highest in over 50 years.

“Today’s statement means deficit reduction is, at last, on track but it does not mark the end of austerity.”

Peter Urwin, professor of applied economics at Westminster Business School

“Despite immense pressure to loosen the purse strings, Philip Hammond ensured his Spring Statement was a non-event. Although, at first glance, conditions may have seemed right for increased spending.

“Since November, the Office for Budget Responsibility (OBR) has brightened its fiscal outlook, giving the Chancellor an ‘unexpected’ £10bn, while productivity picked up in the second half of 2017, and better economic news since January raised growth forecasts for 2018. However, this recent economic good news is only a slight revision, rather than a fundamental rethink. The OBR feels the productivity boost looks odd; the ‘extra’ £10bn is money we didn’t borrow, rather than money we actually have, and revisions to 2018 growth are minimal, simply reversing the over-confidence of last year’s forecasts.

“The ‘upside’ is therefore minimal, but the ‘downside’ is substantial; the Chancellor knows a Brexit hit will arrive at some point. As the Government’s current position in talks with the EU is continued obfuscation on free movement, the Northern Ireland border and trade, the ‘hit’ has likely been kicked into 2019. The powder is being kept dry for this battle.”

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