Welcome 'spend now worry later' stance in budget

Following the Chancellor’s budget, Trevor Greetham, head of multi asset at Royal London Asset Management (RLAM), comments:

“The Chancellor is right to support the economy with a very generous fiscal policy stance while social distancing remains in force. Tax revenues should recover strongly during the re-opening of the economy into 2022, which will help reduce the budget deficit to more normal levels, but debt levels will remain very high by post-War standards and we should expect some fiscal tightening over the next few years.

“A key lesson learnt from the austerity experiment after the 2008 financial crisis is that aggressive spending cuts can be self-defeating if they hamper economic recovery. This is a particular risk right now, as the Office for Budget Responsibility expects Brexit to create a greater long term drag on economic activity than Covid.

“In our view, inflation and financial repression, in the form of negative real interest rates, will play a major part in bringing debt levels gradually down to more sustainable levels. This means returns on cash and government bonds are unlikely to keep pace with inflation over the next few years, so it makes sense for investors to diversify more broadly, including real assets like UK equities, commercial property and commodities in their portfolios.”