13 March 2019

No big spending fireworks in the Spring Statement, but the fiscal outlook is Brexit dependent

5 min read

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Kimberley Robinson

Corporate PR Manager


Commenting on today’s Spring Statement, Melanie Baker, senior economist at Royal London Asset Management, said:

“The modest stimulus and hints of more spending to come were welcome news for the UK economy, especially against a backdrop of weaker global growth but better than expected UK fiscal finances. The Chancellor made very clear, however, that the fiscal outlook was Brexit dependent.

“There were no big spending fireworks in the Chancellor’s Spring Statement, though there was a modest additional net stimulus.  The deficit projections have been lowered again, also giving the Chancellor more theoretical spending ‘headroom’.

“Despite revising their forecasts for 2019 real GDP growth lower, the OBR (Office for Budget Responsibility) revised down their government deficit forecasts.  That largely reflects projections of higher income tax receipts (higher earnings growth assumptions) and lower debt interest spending (reflecting lower market expectations of rate rises).  The amount of ‘headroom’ in the fiscal numbers therefore rose (i.e. the extra net spending the Chancellor could engage in before breaking the fiscal mandate) from £15.4bn to £26.6bn.  The OBR did warn though that, in the event smooth Brexit is achieved, market interest rates and debt interest payment projections may rise again, i.e. reducing that headroom.

“There were some tax and spending announcements, with a net cost of £2.1bn by 2023 as calculated by the OBR (i.e. amounting to a modest net stimulus). The Chancellor also announced that the next multi-year Spending Review (that sets departmental budgets) would start in the Summer and be published alongside the Budget in the Autumn.

“There were plenty of Brexit messages in the Chancellor’s statement though, warning that future spending was dependent on agreeing a deal with the EU and a smooth transition period.  He described there being no simple readily available fix to avoid the consequences of hard Brexit. He also warned that the fiscal and monetary response would need to be ‘carefully calibrated’ given inflation risks, with UK at or close to full capacity and given any reaction in sterling.”

About Royal London Asset Management (RLAM):

Established in 1988, Royal London Asset Management (RLAM) is one of the UK's leading fund management companies, providing investment management solutions to both wholesale and institutional clients such as not-for-profit organisations, local authorities and the insurance sector.

RLAM manages £114 billion of assets and employs 92 investment professionals as at December 2018. It invests in all major asset classes including UK and overseas equities, government bonds, investment grade and high yield corporate bonds, property and cash.

For professional clients only, not suitable for retail investors.

Issued February 2019 by Royal London Asset Management Limited, registered in England and Wales number 2244297; authorised and regulated by the Financial Conduct Authority. Registered Office: 55 Gracechurch Street, London, EC3V 0RL.

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