Autumn Statement: Lower growth forecasts put pressure on Hammond
GROWTH forecasts for the UK are set to be slashed today due to Brexit uncertainty, putting further pressure on Chancellor Philip Hammond to provide fiscal support in the Autumn Statement.
The Office for Budget Responsibility (OBR) is expected to cut its 2017 outlook from 2.2 per cent at the time of former Chancellor George Osborne’s March Budget to as little as 1.25 per cent, according to forecasting group EY Item Club.
However, Hammond has a difficult balance to tread, between increasing government stimulus (via lower taxes and higher investment) and addressing what he has called the UK’s “eye-wateringly large” debt.
It is expected that the chancellor will adopt a more flexible fiscal framework than his predecessor in order to give the Treasury some wriggle room, if the UK’s departure from the EU causes the economy to nosedive. He has already moved away from Osborne’s target of a surplus by 2020.
“Despite the economy’s current resilience, Hammond has stressed that the economy is likely to face difficult times ahead – so he is likely to provide some support now and to build-in scope for increased fiscal support over the lifetime of this parliament if need be,” said Howard Archer, chief UK and European economist at IHS Global Insight . “Indeed, with the major uncertainties surrounding Brexit and the economic outlook, there would seem to be little to be gained and potentially a lot of credibility to be lost from adopting rigid fiscal targets that could quickly look unattainable.”
The peer-to-peer finance industry has not yet experienced a downturn, but lenders are generally optimistic about their ability to prosper in any market conditions. However, slowed economic growth could lead to businesses borrowing less as they put off their expansion plans, or higher default rates.
Conversely, higher inflation could drive investors to P2P. EY Item Club predicts that the OBR will today raise its inflation forecast for 2017 from 1.6 per cent to nearly three per cent. This would hit already-squeezed savers and could encourage them to diversify into alternative investments.
Economic uncertainty has already impacted investment in UK fintech start-ups and P2P lenders are hoping that the chancellor will use the Autumn Statement as an opportunity to throw his support behind the UK’s growing fintech sector.
“It will be interesting to see what they say about fintech,” economist Vicky Pryce told Peer-to-Peer Finance News. “Theresa May, whether she likes it or not, mentioned the finance sector first when she spoke about the main strategic sectors that she wanted to protect. I think Hammond told her to say that.
“Clearly they want to keep the finance sector going and I think they will keep on tinkering a bit to ensure this. I think there will be all sorts of opportunities to encourage more in that area.”
Treasury officials have already revealed that the Autumn Statement will include a £1bn investment in ‘full-fibre’ broadband across the UK, as part of a wider commitment to digital infrastructure.