13th March 2018
Today at 12:30pm the Chancellor of the Exchequer, Philip Hammond, presented his first ever Spring Statement following his decision to move the Budget to November, replacing the Autumn Statement (which over the last few years had in effect been used as a mini-budget).
As a result, today’s address to Parliament was very different. Not only was there no red box (and therefore no photoshoot outside Number 11) and no tax changes; more significantly, today is a Tuesday and normally Budgets and Statements are on a Wednesday, immediately following the weekly PMQs. Additionally, it was just a review of the UK’s financial health, using predictions from the Office for Budget Responsibility (OBR), covering projected GDP growth and government borrowings.
While it was another underwhelming speech from the Chancellor, there were a few jokes and attacks on the Labour party – which I assume was to try and distract from the fact that the revisions to the OBR forecasts were much smaller than expected.
In summary, Philip Hammond reported that economic growth in the short-term will be higher than previously projected by OBR, but lower in the long-term: GDP growth in 2018 is now expected to be 1.5% (up from 1.4%), and while 2019 and 2020 was left unchanged at 1.3%, growth in 2021 and 2022 was revised down by 0.1% to 1.4% and 1.5% respectively.
Interestingly, Philip Hammond said that real wage growth will turn positive during the first quarter of the 2018/19 fiscal year – which if correct, may impact the actions of the Bank of England’s policymakers when it comes to interest rates (despite the above low economic growth trajectory).
And while Philip Hammond may have some room for extra spending come the autumn (the beginning of the end of austerity?), as the fiscal projections he presented suggest that the UK will borrow £15.6bn less than expected over the next six years, don’t expect any giveaways!
From a stock market standpoint, this Spring Statement (like many recent Budgets and Autumn Statements), had absolutely no impact on UK equity markets – in fact, of more importance today was news that Donald Trump was replacing Rex Tillerson with Mike Pompeo as his Secretary of State (which impacted the value of the US dollar) and the US CPI inflation data (US CPI was up 2.2% in the 12 months to the end of February 2018 (compared to 2.1% in January), while the core CPI was unchanged at 1.8%).
Ian Copelin, Investment Director