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Despite grim Brexit budget, Hammond hushes critics for now
November 23, 2017 / 11:36 AM / 21 days ago

Despite grim Brexit budget, Hammond hushes critics for now

LONDON (Reuters) - A bleak Brexit budget that slashed growth forecasts but gave young voters a tax break on buying their first property may have placated critics of British Chancellor Philip Hammond, at least for now.

Britain's Chancellor of the Exchequer Philip Hammond presents his budget in the House of Commons, London, November 22, 2017. Parliament TV handout via REUTERS

Hammond was under intense pressure from within his Conservative Party to spend money Britain doesn’t have on courting voters, even though he is boxed in by uncertainty over the impact of Britain’s March 2019 exit from the European Union.

Despite the sombre outlook for economic growth and government borrowing, Hammond announced on Wednesday some spending steps aimed at winning back voters, in particular abolishing a property tax for most first-time home-buyers.

The plans were enough to win over Conservative lawmakers, some of whom who had even been urging Prime Minister Theresa May before the budget to fire Hammond - nicknamed “Spreadsheet Phil” - for his cautious approach to Brexit and the public finances.

“It is clear that, thankfully, we are now all singing off the same spreadsheet,” said Conservative lawmaker Andrew Bridgen. He had previously suggested May would have to sack Hammond if he deviated from the government’s position on Brexit.

The Sun newspaper praised Hammond for putting money in voters’ pockets while the right-wing Daily Mail declared Hammond was “Eeyore no more!”, referring to the glum donkey from A.A. Milne’s Winnie-the-Pooh books. Last month the pro-Brexit paper had described him as treacherous and dismal.

“I’ve never been gloomy, I‘m a pragmatist. I take the world as it is,” Hammond told BBC radio on Thursday.

May told broadcasters he had done a very good job on the budget, when asked if his job was safe.

Other media were sceptical about his chances of silencing his critics. The Financial Times said “‘Box Office’ Phil does enough to survive, for now”.

Britain's Chancellor of the Exchequer Philip Hammond presents his budget in the House of Commons, London, November 22, 2017. Parliament TV handout via REUTERS

TROUBLE AHEAD?

The Office for Budget Responsibility (OBR) scythed its projections for economic growth in the coming years in the midst of a dire decade for productivity - the worst since 1812, according to the Resolution Foundation think-tank.

The budget forecasters chopped their economic outlook for the next five years, with growth in 2017 cut to 1.5 percent from a previous estimate of 2.0 percent, a contrast with world economic growth of 3.6 percent in 2017 and 3.7 percent in 2018, according to the International Monetary Fund.

Slideshow (6 Images)

Weak growth means Britain will make glacial progress in fixing its public finances, leaving Hammond boxed in.

The Institute for Fiscal Studies said at the current pace, based on current rates of debt reduction, Britain would not cut debt as a share of gross domestic product back down to its level before the 2007-08 financial crisis until the 2060s.

After years of criticism that its forecasts were too optimistic, pro-Brexit economists said the OBR was too downbeat.

But data on Thursday showed Britain grew at its joint-weakest annual rate since 2012 in the third quarter.

The OBR’s outlook has yet to take into account the impact of Brexit, given that the nature of the exit deal is still unclear. Economists polled by Reuters assign a roughly one-in-three chance of a disorderly exit.

Compounding matters for Hammond, the squeeze on households looks set to last for years. The OBR forecast virtually no wage growth in inflation-adjusted terms for the next two years.

“We will all have to get used to the idea that steadily rising living standards may be a thing of the increasingly distant past,” IFS director Paul Johnson said.

Additional reporting by Elizabeth Piper; Editing by Gareth Jones, William Schomberg and Richard Balmforth

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