Anna Stupnytska, Global Economist at Fidelity International, comments on today’s budget announcement and the outlook for the UK economy:
“As widely expected, Philip Hammond adopted a cautious approach to the public finances in his first – and last – Spring Budget. This seems prudent in light of the risks to the UK fiscal outlook. Putting Brexit aside, there are reasons to believe that the public finances are flattering to deceive. Global growth has surprised to the upside over the past year, but looks likely to moderate over the coming months. This less friendly backdrop is likely to weigh on the UK economy and tax receipts. Higher borrowing costs could also blow the public finances off course, with a larger debt pile making the UK much more sensitive to rising yields.
“Inevitably, of course there are also questions about the impact of Brexit. The OBR revised 2017 growth forecasts from 1.4% to 2%, reflecting improved sentiment in recent months. But, UK growth last year was largely driven by consumption, and as higher inflation forces consumers to tighten their belts, growth could actually falter in 2017. In terms of the Chancellor’s credibility, it is better to admit he was too pessimistic than being too optimistic and then having to revise expectations down.”
