Philip Hammond MP Chancellor of the Exchequer. Photo: Number 10
Today’s economic data strengthens the case for a fiscal boost in the Autumn Statement
Economic commentators have been kept busy today by a welter of publications.
The ONS published their brief assessment of the post Brexit economy (Summary – the UK economy appears to have weathered the shock of the decision to leave, but it’s too early to tell the long term impacts).
The Bank of England issued their regular survey of ‘agents’ views on the economy (Very short summary – consumers are cheerful but businesses are gloomy, with investment and employment intentions falling).
The OBR released their assessment of borrowing figures, showing that nearly half way through the year, borrowing figures have fallen by only around a quarter of the level needed to meet the end of year target set out in their March forecast, with lower income tax and national insurance receipts than expected.
Meanwhile the OECD delivered their Interim Economic Outlook, warning of weak global growth, including a downgrade in the UK’s growth 2017 growth forecast following Brexit.
What does this mean for policy makers in the run up to the autumn statement? The OECD were clear – monetary policy has taken the strain for too long, and countries should “use fiscal space provided by low interest rates to boost growth and equity” and in particular, “restructure their spending and tax policies towards a more growth friendly mix by increasing hard and soft infrastructure spending…” (see p7 of their shorter report).
As the TUC has argued since the referendum result, a boost in infrastructure spending could give businesses the confidence they need to invest, helping offset the uncertainty triggered by the Brexit vote, as well as providing companies with more of the tools they need to raise productivity.
And as the OECD makes clear, spending now could help the government in its efforts to reduce debt too: “Easing of the fiscal stance through well-targeted growth-friendly measures is likely to reduce the debt-to-GDP ratio in the short term” as growth boosts the tax revenues that are currently falling short, feeding through into a healthier position for government.
It’s sometimes said that when all you have is a hammer, everything looks like a nail. But following the Bank of England’s own sledgehammer approach to monetary policy in August, fiscal policy is looking like by far the best tool in the box. It’s time for the Chancellor to start building.