Hammond to Present Upbeat Picture as Britain Prepares for Brexit

In his Spring Budget Wednesday, Hammond will deliver an upbeat assessment of the future as Prime Minister Theresa May prepares to trigger formal talks with the EU this month. While the need to continue reducing the deficit means difficult decisions on tax and spending, investment remains a priority and the government will help ordinary working families still suffering from the effects of the 2008 financial crisis, the Treasury said in a briefing note.

According to Bloomberg, the economy has performed better than the predicted since the June referendum and the Office for Budget Responsibility is widely expected to raise its 2017 growth forecast from 1.4 percent, bringing its projections more into line with the Organization for Economic Cooperation and Development and the International Monetary Fund. Hammond said on Sunday this resilience will allow May to start Brexit negotiations with a strong hand. 

Still, the squeeze on households from soaring food and fuel costs -- the result of the depreciating pound -- is starting to be felt and Britons are facing years of continuing austerity as Hammond seeks to balance the books in the next parliamentary term. Fiscal giveaways will be limited, with help targeted at areas such as social care, where services are struggling to cope with the demands of a growing and aging population.

Budget Undershoot

The budget deficit is on track to undershoot official forecasts by as much as 12 billion pounds ($15 billion) in 2016-17, data for the first 10 months of the fiscal year suggest. According to the Resolution Foundation, borrowing in the five years through March 2021 could be 29 billion pounds less than predicted in November. It would mark the first upgrade to the medium-term fiscal outlook since early 2014, a potential boon for bondholders.

For economists, though, the art of predicting is harder than ever as Britain prepares to embark on two years of Brexit talks that Hammond concedes will prove rocky at times.

Less than two-thirds of economists surveyed by Bloomberg this month thought Hammond would achieve his new target of limiting the structural deficit to 2 percent of national income in 2020–2021. Hammond wants the shortfall to be well below that threshold so he has room to loosen the purse strings should the economy require a boost in the coming years.

The Budget will set out the government investment in the younger generation by earmarking funding for schools and technical training -- echoing May’s ambition to promote a more egalitarian form of Conservatism and her push to create more selective schools. 

Other measures will include extra funding for innovation as part of measures to boost productivity. Hammond will also pledge 5 million pounds to support projects to celebrate the 100 years since the Representation of the People Act, which paved the way for universal suffrage.