Philip Hammond Is Set To Deliver Fresh Wind Of Optimism In Spring Budget Statement

Philip Hammond, the Chancellor of Exchequer, or Minister of Finance in as honorable way as only British can call it, might become a hero of the day while presenting the Spring Budget in the UK parliament this Tuesday. There are two parliamentary speeches delivered by the Chancellor in a year. The first one in spring, that usually sums up the state of the UK economy and its public finances and the second one in autumn, presenting key pillars of next year’s Budget.

With the UK economy resisting the recession even after the June 2016 Brexit referendum, the public finances are less of an issue for the public interest, especially as they are currently doing much better than expected. In fact, most of the opposition or shadow Finance Ministers want to abandon the Spring Budget, but then, when coming to power, they tend to find it easier to communicate with public their economic goal twice a year, rather than just once.

With Philip Hammond, the things are even more complicated as he announced the tax increases for self-employed back in spring Budget statement in 2017 just to abandon it one week later as the topic turned out to much more “politically sensitive” than originally estimated.

Moreover, the fact that the Office for Budgetary Responsibility (OBR), the UK’s government watchdog for public finances issued its fresh macroeconomic forecast just four months belittles the Hammond’s Spring Budget statement, but there are important issues Hammond may want to point at.

First and the foremost it the actual GDP growth rate. While the OBR estimated GDP to rise 1.5 percent back in November last year, the actual GDP rose 1.7 percent for the whole year of 2017 when compared to 2016, the Office for National Statistics said on February 22 this year.
Related to last year’s better-than-expected GDP growth rate is also a prediction for 2018 that has been previously estimated to reach 1.4 percent. Looking at the economic performance in 2017, the UK Chancellor might want to sound a bit more optimistic on the UK economic outlook for 2018, although the key risk factor in agreeing on the Brexit deal with the European Union is still on the table.

The second reason for Hammond’s optimism is a current development of the UK public finances. The UK public sector deficit is actually doing much better than expected last autumn. While £50 billion deficit had been expected back in autumn last year, now £40 billion deficit looks like more achievable figure as for the first time since the financial crisis of 2008, tax receipts are covering the operational cost of the UK government and the UK Treasury need to borrow only to finance its investment.

The lack of positive news in the Brexit-related economic uncertainty before the key European summit due on March 22 deciding on the UK-EU shape of the trade deal is another tactical reason for the UK domestically-driven optimism.