UK Budget 2017: Playing the long game - HSBC

Research Team at HSBC points out that perhaps the biggest surprise in the 2017 Budget was the large number of jokes in its delivery relative to few new policy announcements.

Key Quotes

“Despite upward revisions to near-term growth in the 2017 Budget and only one mention of the EU in his speech, uncertainty about Brexit means the Chancellor, Philip Hammond, was not about to make any unnecessary giveaways.  The lack of giveaways seems consistent with our long-held view that there is no serious appetite for trying to hold an early election.”  

“To justify his position, the Chancellor highlighted the UK's large public debt burden, given an uncertain economic outlook.  Some new spending commitments were funded. More specifically, he announced new spending for schools, training, and social care. These were largely funded by an increase in National Insurance contributions from the self-employed (in a potential break of a manifesto pledge) and a reduction in the dividend tax allowance.”

“Borrowing down in 2016/17 and 2018/19, but otherwise few changes

Public sector borrowing is now projected to be GBP24bn lower over five years than in November. Most of this comes from a GBP16bn fall in the current fiscal year due to higher projected receipts in the final months of the year, departmental underspends, and some one-off accounting and payment changes. Further ahead, the improvement was less impressive.  The additional spending allocated to FY 2017/18 ate up most of the gains there and beyond 2019 there was little change to borrowing.”  

“Growth stronger in 2017 but subsequent weakness almost fully offsets it   

• A stronger start to 2017 means the OBR revised up its 2017 growth forecast from 1.4% to 2.0%, as we had expected.  This largely reflected stronger household spending.  With rising inflation, the OBR expects household spending growth to slow later in the year.  So while the upward revision to projected 2017 growth will grab the headlines, cumulative growth between now and 2021 was little changed from November.  
• Medium-term forecasts of the economy and public finances are uncertain at the best of times.  Given the OBR does not know what the UK's trade deal, immigration policy, or EU payments will be, this currently makes forecasting extremely difficult.”