Ahead of Chancellor Philip Hammond’s Autumn Statement on Wednesday it was the economy that dominated this week’s news cycle. Record retail sales and lower-than-expected inflation data suggested the economy remains resilient but Hammond is expected to announce a massive, growing hole in public finances which will limit his scope for reflating the economy.
Here are six pieces of economic news:
1. The UK budget could show a £100bn deficit within five years due to the negative impact of Brexit on investment, growth and tax revenues, according to official forecasts reported by the FT on Wednesday. The deficit marks a sharp reversal from George Osborne’s pre-referendum budget which targeted a budget surplus by 2019-20. Commentators speculate Hammond will announce some measures to help those “just about managing”, though deteriorating public finances would limit the scope for major spending initiatives.
2. The EU budget, and the UK’s contributions to it, also made the news. The Financial Times reported on Tuesday that a quick exit by mid-2018 could leave Britain with a €40bn-€60bn exit bill, including unpaid budget commitments and loan guarantees. And German finance minister Wolfgang Schäuble told the FT yesterday that UK budget commitments could last well beyond Brexit, until 2030. Meanwhile, sterling’s post-referendum plunge against the Euro will add hundreds of millions of pounds to Britain’s 2017 and 2018 euro-denominated EU budget contributions.
3. Two polls this week suggested appetite for a hard Brexit may be waning. An ICM survey reported in the Guardian found that one-third of voters support Brexit unconditionally. Another 23% oppose it unconditionally, while a further third said it would depend on the terms of the deal. A NatCen poll released on Wednesday found that 90% of people favour remaining in the single market. Yet the poll also found that 70% favour limits on EU immigration. Therein lies the problem – EU leaders, including Angela Merkel, remain adamant that free movement and single market membership are indivisible.
4. On Monday, Group M, the media arm of the world’s largest marketing services company, WPP, upgraded its forecasts for ad spending in 2016 and 2017, suggesting the impact of the Brexit vote remains limited. And Google announced plans for a major new London campus expected to create 3,000 new jobs by 2020. ONS figures showed a fall in unemployment to an 11-year low in September.
5. Defying earlier forecasts, the annual inflation rate fell to 0.9%, down from 1.% a month earlier, amid signs retailers are not yet passing on higher import costs to their customers. But Bank of England governor Mark Carney said: “I would not take a steer from the October numbers … inflation is going to go up”. And research from the Chartered Institute of Personnel and Development and the recruitment agency Adecco suggests that rising inflation will squeeze take-home pay. Seemingly undeterred by these prospects consumers continued to shop in record numbers – October retail sales rose at their fastest annual rate in over 14 years, jumping 7.4%.
6. The outlook for post-Brexit UK trade remained as unclear as ever. Foreign Secretary Boris Johnson was reported as telling a Czech newspaper that Britain is “probably” leaving the customs union, only to have Theresa May’s spokeswoman repeating that no decision had yet been made and that the government would not provide a running commentary on its Brexit preparations. Johnson also managed to upset Italian Economics Minister Carlo Calenda when he told him that Italy would end up granting Britain full access to the single market “because you don’t want to lose prosecco exports”. Meanwhile, an Open Britain analysis, published on Monday, found that importers would face £1.2bn in additional costs if the UK left the single market and customs union, thereby binning EU free-trade deals with 54 countries.
Edited by Geert Linnebank