Cautious budget as brexit looms.

8th March 2017

Ian Copelin, Investment Director, comments ‘Today was Budget day in the UK.  And while the Chancellor of the Exchequer, Philip Hammond did crack a few jokes, unlike his predecessor George Osborne, he didn’t play to the crowd and instead showed that he was more of a steady hand on the tiller.

I would summarise it as a very cautious, short (55 minutes) Budget statement.  I don’t think it was a Budget from a government that was even remotely considering calling an early, snap election.

As Philip Hammond had already made it clear that the UK economy needs “reserves in the tank” to help maintain flexibility and cushion against any economic deterioration due to Brexit uncertainty over the next few years, he had limited scope for any giveaways.

While he didn’t make any big announcements, he did announce some good news:  the Office for Budget Responsibility (OBR) had increased its GDP forecast for 2017 as the UK economy “has continued to confound the commentators with robust growth and a labour market delivering record employment” following June’s referendum.

The OBR now forecasts economic growth of 2% for 2017 compared with 1.4% predicted at the time of the Autumn Statement on 23 November 2016, while the budget deficit is now expected to be £51.7bn for 2016/17 compared with the £68.2bn forecast in November.

This helped the pound bounce off its seven-week low of US$1.2139.  As I write the pound is $1.2171 – albeit still down 0.30% on the day.

However, it wasn’t all good news as his higher growth forecast is limited to this year.  The OBR has clearly spotted that recent economic data is showing signs of turning down and has captured that shift as GDP growth for 2018 was trimmed to 1.6% from 1.7%, while growth in 2019 was cut to 1.7% from 2.1% and 2020 was trimmed to 1.9% from 2.1%.’