Global Daily – Less austerity in the UK

by: Nick Kounis

In this publication: UK government scales back austerity

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UK Macro: Government scales back austerity:

The UK government published its Autumn Budget earlier today. The Budget included new tax and spending decisions over the next two years, so the fiscal stance has been eased modestly (around 0.5% GDP) compared to the previous base-line. However, the trend is still one of modest austerity. Cyclically-adjusted public sector net borrowing (essentially the structural budget deficit) is seen falling to 1.8% GDP in FY 2018 and 1.5% in FY 2019 from 2.3% in FY 2017. This means that the overall fiscal stance still tightens by 0.5% GDP in the next fiscal year and 0.3% GDP in the one after. This contrasts to the eurozone where the fiscal stance is broadly neutral and the US where the fiscal stance will probably ease modestly. This is one of the reasons for the continued underperformance in UK economic growth. However, uncertainty related to Brexit is playing a major role, as we well as weakening of trend growth because of soft productivity growth. Indeed, UK economic growth will likely be much weaker than in the US and the eurozone over the next two years. The OBR estimates economic growth of 1.4% next year and 1.3% in 2019 (compared to 1.5% this year). The Budget increases spending on healthcare, sets aside money to ‘ensure’ a smooth Brexit transition, as well as expanding the National Productivity Investment Fund. Meanwhile, on the tax side, Stamp Duty Land Tax is abolished for first time buyers (up to GBP 300K) and fuel duty is frozen. (Nick Kounis)