As expected there were no fireworks going off in today’s Autumn Statement and in fact the only rabbit pulled out of the hat was news that the Autumn Statement will be abolished and replaced with a Spring Statement from 2018. From then the Budget will take place in Autumn, well ahead of the start of the fiscal year, whilst the Spring Statement will be downgraded to a response to OBR forecasts but will not be a major fiscal event.
Growth forecasts slashed
Brexit, as expected was all over this Autumn Statement. On his first task of taking us through economic forecast the expectations leading up to today’s event of a slashing of economic growth forecasts was spot on although, sweetened first by news that the UK’s economy is going to be the fastest growing economy in the G7.
GDP projections for 2017 were downgraded to 1.4% from 2.2% as weak demand and high inflation are expected to weigh on the UK economy in a post Brexit climate. In reality a downgrade to 1.4% is not as catastrophic as we could have expected some months ago and as a result this is not the big emergency budget that George Osbourne predicted should we vote to leave the European Union. In fact ,as pointed out by the Chancellor, 1.4% growth is the same level of growth as other European nations which goes to show the level of resilience that our economy is demonstrating in a post Brexit landscape. However, a cautious tone should still be set given that we haven’t actually left the union yet so this could all change very quickly once Article 50 is triggered.
Problems with forecasts
Other growth forecasts included 1.7% for 2018 and 2.1% for 2019, unchanged. However, here it’s worth noting that there is a lot of guess work going on given Brexit, there are so many unknowns that these forecasts may need to be quite fluid; post Brexit we don’t even know what type of relationships will be formed, if we are looking at a hard or soft Brexit and therefore what immigration inflows will be and immigration inflows are data that make up part of these projections.
This is clearly a fragile situation and the big picture here was to prioritise on spending on infrastructure, in order to ensure that the UK economy is ready for the uncertainties that lie ahead. However, the level of spending is set to create a much bigger black hole than was previously considered. Prior to the Autumn Statement £100 billion black hole was projected now this figure is actually looking much greater at around £120 billion.
Sterling experienced some volatility through the address but the standout mover has been estate agent Foxtons which has fallen over 10% throughout the course of the session. One of his many pledges toward housing and JAMS was to crack down on estate agent rental fees and this has driven investors out the stock.