Issue of the week: the economics of the Autumn Statement

Gloomy growth forecasts and a big jump in borrowing gave the new Chancellor precious little room for manoeuvre

In recent years, the Autumn Statement “has taken on the character of a mini-Budget”, said Roger Bootle in The Daily Telegraph. The new Chancellor, Philip Hammond, has just decided this will be the last one. (Now the Budget will be in the autumn, supplemented by a cut-down Spring Statement.) But this week’s last ever Autumn Statement provided an opportunity to outline his priorities for taxes and spending in post-brexit Britain. It was a tricky call, even for “Spreadsheet Phil” – made all the “more demanding by greater than usual forecasting difficulties”. Despite the non-appearance of “the muchheralded Brexit recession”, the Office for Budget Responsibility (OBR) is “gloomy” about growth prospects: it downgraded its forecast growth for 2017 from 2.2% to 1.4%. And the Chancellor had to take the OBR’S forecasts as the basis for his budget planning.

The upshot was a big shock in the borrowing figures, said BBC News online. They’ll be a whopping £120bn higher over the next five years, compared with the OBR’S March projections. And some City economists reckon even this is optimistic. “We expect further upward revisions to borrowing forecasts as growth falls short of the OBR’S expectations,” said Samuel Tombs of Pantheon Macroeconomics. “Hammond is not by nature a splurge person,” said Alex Brummer in the Daily Mail. But he’s ditched George Osborne’s plan to get a budget surplus by 2020. No shame in that, said David Smith in The Sunday Times. Fiscal rules are rarely built to last: “of the 12 adopted since 1997”, ten have been broken. Even so, “investors and rating agencies need to know governments are operating under some constraints”. Hammond has introduced three new fiscal rules giving him greater “headroom” to deal with uncertainties. First: public finances should balance as “early as possible” in the next parliament. Second: the burden of public sector debt should start falling by the end of this parliament. And third, a new cap on total welfare spending.

The good news is that the UK economy is not in “urgent need of a fiscal boost”, said the FT. Growth held up in the third quarter, and “consumers are still spending”. The day before Hammond’s statement, monthly Government borrowing figures delivered “a welcome surprise”, said Alistair Osborne in The Times. October’s borrowing came in at a “trifling” £4.8bn, well ahead of the forecast £6bn. Yet the Chancellor is still on track to miss this year’s £55.5bn public borrowing target by more than £10bn. The situation, in the short term, may not be quite as bad as expected, but the public finances – and the Chancellor – are “still in a jam”.