UK Chancellor, Phillip Hammond, gave a clear indication that the straightjacket on public finances, central to the Osborne-Cameron post financial crisis strategy, is to be loosened as the UK prepares for a ‘rocky road’ in the run up to Brexit. This means abandoning George Osborne’s target of getting public finances to balance by 2020. This means that borrowing to fund infrastructure projects and new homes will not be subject to previous fiscal constraints.
Like many, the Chancellor is not convinced that looser monetary policy alone will be sufficient to stimulate the UK economy, nor that the private sector can generate the growth and jobs required to steer a steady course in the run-up to Brexit itself. In short, the UK government will have to take some responsibility in what is being called a soft-Keynesian approach. The Communities Secretary, Sajid Javid, began to set out the government’s stall by setting a target of building 1 million new homes by 2020. Mr Hammond will reveal more in his first major financial statement, the Autumn Statement, on November 23rd.
The immediate impact of Mr Hammond’s speech, following on from Mrs May’s comments on the timing of Brexit, was on sterling, which fell to a 3-year low against the euro. The prime minister has earlier clarified that she would trigger Article 50 by the end of March 2017, with the UK likely to leave the EU by the middle of 2019.