This was the last Autumn Statement as the Chancellor changes the diary to just a brief spring statement followed by one Budget a year, which will continue to take place in the autumn. He is giving £6.5 million to save Woodhouse Wentworth, Europe’s largest private house, and said to be the model for Pemberley in Jane Austen’s Pride and Prejudice.
George Osborne, during the Brexit debate, said that he would hold an emergency budget if the UK voted to leave the EU. Philip Hammond has declined to do this and many of the dire predictions made by the Remain camp have yet to come to fruition. The Bank of England stepped in with an immediate cut in rates and sterling has fallen steeply which may be contributing to a better economic outcome. This afternoon’s Autumn Statement is the first detailed response from the new Chancellor to the referendum and, as part of the statement, we get the revised Office of Budget Responsibility (OBR) expectations for the economy in a post Brexit world. As a result, this statement is being watched more closely by markets than it has been historically.
It was perhaps with pride that Hammond started his statement with this year’s growth statistics showing that the UK was the fastest growing advanced economy in 2016. Market reaction during the speech was muted with the FTSE down 0.5%, the pound little changed and Gilt yields up, which was partly due to stronger data in the US pushing yields higher there.
The OBR expects UK growth to be 2.1% in 2016. However, this is expected to slow to 1.4% next year, 1.7% in 2018 and 2.1% in 2019/20. This is weaker than what was said in March but in line with the Bank of England for 2017 and firmer than the Bank’s expectations in November for 2018-20. The OBR highlighted that in light of Brexit, making predictions was harder than usual. Over the five year forecast period this is 2.4% lower due to Brexit.
A new National Productivity Investment Fund will add £23 billion of investment over the next four tax years. These measures include further progress on housing, 5G internet connections, science and investment in regional growth. These are expected to be partially funded by more measures to reduce tax avoidance. As expected, Hammond announced a relaxation of the budget rules imposed by his predecessor.
For investors he recognised the hardship caused by low interest rates and will introduce a National Savings bond with around 2.2% interest for three years but full details will only be in the March Budget and investment will be limited to £3,000. There was also a mention of giving Mayoral authorities increased borrowing powers that may lead to the development of a UK municipal bond market.
Overall, little market impact with US durable goods orders moving the market more than anything the Chancellor said.