Philip Hammond, who replaced George Osborne as UK Chancellor on Wednesday, has pledged to “do whatever we need to do” to shore up the UK economy in the wake of the Brexit vote and signalled an end to the policy of austerity that defined Osborne’s time in the role.
Hammond told Sky News on Thursday: “The economy has taken a shock. We will take whatever measures are necessary to restore confidence, stabilise the economy as we move forward with the negotiating process.”
The majority of banks and economists have forecast a UK recession in the wake of Britain’s shock decision to leave the European Union, as investment and trade suffer from the uncertainty around the country’s future.
Some markets are already showing signs of strain: the pound fell to a 31-year-low after the result came in, UK property funds worth £15 billion ($19.8 billion) have had to freeze withdrawals as investors rush to pull money out, and the number of people looking to buy a house in June “declined significantly.”
Hammond told Sky he does not expect to make an emergency budget and said: “Britain is open for business, we are not turning our back on the world and we are determined to maintain our outward-looking stance.
“We will do whatever we need to do to restore confidence and to keep Britain as an attractive destination for businesses to invest and create jobs.”
As well as pledging to support business, Hammond also signalled that George Osborne’s era of austerity could be coming to an end.
He told Sky News: “George Osborne did a fantastic job of taking this economy from the disastrous position we were in 2010. We are immeasurably stronger today than we were 6 years ago. But now we are moving into a different phase for the British economy with new challenges as we exit the European Union and new opportunities as well.”
As Chancellor George Osborne made reducing the UK’s budget deficit his top priority. In practice, this meant deep spending cuts to government departments and welfare spending, leading the policy to be dubbed “austerity.”
When asked if he believed in deficit reduction on the BBC’s Today Programme on Thursday, Hammond replied: “Our economy will change as we go forward and it will require different parameters to measure its success. Of course we’ve got to reduce the deficit further, but looking at how and when and how we measure our progress in doing that is something that we now need to consider in the light of the new circumstances that the economy is facing.”
Shortly before leaving office, George Osborne abandoned the government’s target of running a budget surplus by 2020, blaming the uncertainty surrounding Britain’s shock decision to leave the European Union.
The decision to put deficit reduction on the back-burner is surprising given Hammond’s reputation as a fiscal hawk. Berenberg’s Senior UK Economist, Kallum Pickering, predicts that it will become a greater priority once the UK is out of the Brexit woods, writing in a note on Thursday:
“Hammond has a reputation as a fiscal hawk, which potentially conflicts with May’s pledge to ease up on the pace of austerity. As a best guess, we will likely see a compromise between these two positions at November’s Autumn Statement. Looser fiscal policy in the near-term while demand is weak with the major cuts pushed to the back of the forecast when economic growth is likely to improve.”
While deficit reduction may take a back seat at the Treasury under Hammond, it does not necessarily mean the end of austerity in terms of welfare spending. Hammond may simply decide to emphasise spending on infrastructure and other large projects to boost economic growth.
Barclays and Credit Suisse have both this week predicted that the Brexit vote will tip the UK into recession and Bank of England Governor Mark Carney made a similar prediction prior to the vote. Asked if he expects a recession, Hammond told Sky News: “I shall today have a series of economic meetings… That’s an assessment I will want to make for myself over the coming hours.”
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