Good morning,
Less fiscal fireworks, more snap, crackle and pop
The focal point of today’s Autumn Statement will not be the policy announcements, the ‘JAM’ soundbites or the shadow chancellor’s copy of Chairman Mao’s Little Red Book, but what we will learn about Philip Hammond’s approach to the exchequer. In other words, will he be an interventionist, reactionary chancellor or a ‘long-termist’ who’ll lay out a plan and stick to it, regardless of the short-term volatility in party’s popularity or the financial markets.
The expectations for every year’s autumn statement are commonly telegraphed in the press well ahead of the event itself, and this year is no different. Cuts to air passenger duty, a further freeze in fuel taxes and a rise in the tax-free personal income allowance are all expected as part of today’s announcements. The much-eyed cut to corporation tax, a change in the highest income tax bracket and an overhaul of public spending are less likely to occur today, with next year’s Spring budget being the time for sweeping changes. To the larger end of the announcements that could come today is a further £1.4 billion pledge for 40,000 affordable homes and a ban on the fees that letting agents charge tenants when renters move from property to property. While this may be a somewhat niche policy, it’ll certainly prove popular with those yet to set foot on the housing ladder who’re shelling out on average £337 in fees for securing a rental property.
Markets unlikely to pay much attention to Hammond, but will be eyeing OBR projections
At the end of Hammond’s speech, the Office of Budget Responsibility will release the latest growth and debt forecasts alongside expected debt issuance numbers, which most often cause the most market volatility. The growth and deficit expectations could make for grim reading; the former will likely be relatively unchanged in the short-term, but long term projections should be marked lower. Recent reports of a Brexit-sized £100 billion hole in public finances will also become clearer as Hammond moves further and further away from George Osborne’s 2020 balanced budget target that was abandoned earlier this year.
The pound is likely to remain relatively unreactive to the statement itself, but should pay more attention to the growth and debt projections that conclude the speech. The OBR are likely to cut their 2017 growth forecast down to 1.2% from 2.2% previously and won’t forecast a recession, but will highlight the risks of low productivity to long term growth in the UK.
Eurozone economy back into two-speed mode as Germany flies and France falters
The past few months have shown further gradual improvements across the continent, but today’s PMIs should show another ahead-of-average German performance and further evidence that France needs to do more to stimulate growth to avoid being left behind. This contrast in economic fortunes will likely be highlighted more and more as we move into 2017 and through the electoral rigmarole once again with both the French and German presidential elections.
Have a great day.