UK: Neutral fiscal stance - BNPP

Research Team at BNP Paribas, suggests that in the UK, Chancellor of the Exchequer, Phillip Hammond will present the government’s Autumn Statement on Wednesday.

Key Quotes

“Since the EU referendum, growth has held up but fiscal outcomes have been worse than expected. This means there should be less fiscal tightening than previously planned, but the government will stop short of actively loosening fiscal policy. Nonetheless, by not tightening fiscal policy as previously envisaged, the government will have money to play with. We expect smaller cuts in social spending, more money for the health service and an increase in infrastructure investment.”

“We expect the government to frame its fiscal policy by drawing a line between investment spending and day-to-day spending. It is likely to aim to reduce the cyclically-adjusted current deficit over the course of the parliament. However, by focusing on the cyclically-adjusted balance, this means current spending can increase somewhat if the economy underperforms. At the same time, it is likely to allow increased borrowing for investment purposes. We therefore expect an increase in net investment spending of around ¾% of GDP, or about GBP 15bn, per year by 2018/19. In aggregate, this means public-sector borrowing is likely to increase from GBP 63bn in 2016/2017 to GBP 71bn in 2017/2018.”