The Budget was more interesting for its context than its content. There is an observable difference between Chancellor Hammond’s approach and that of his predecessor, George Osborne. Much of the austerity that had been embedded in Osborne’s plans has been stripped out – there is now more than £100bn of extra borrowing proposed over the next five years than there was in Osborne’s last budget.
Of some note is the £16bn ‘windfall’, which is the reduction in borrowing for this financial year compared to what was forecast in November – a product of the better economic performance of the economy than had been expected at the time. Although Hammond is proposing extra funding in areas such as education and social care, he isn’t spending all of the improvement – he is putting the majority of it to one side for a rainy day, or for later in the political cycle, whichever comes first.
This extra money that the Chancellor has been able to put to work, as we’ve said, results from the fact that the economy has been performing better than expected. The Office for Budget Responsibility has upgraded its growth forecast for the current year from 1.4% to 2.0%, which suggests it is coming around to our more benign view of the UK’s economic situation. We are more upbeat on the outlook for the UK economy than many commentators – the market consensus, in our view, has become too bearish in the aftermath of the Brexit vote. We are more positive on the outlook for the UK and, naturally, more positive about the outlook for some domestic stocks.
There are challenges ahead economically – not least, the public debt burden which, despite recent improvements, remains ‘eye-watering’ – but the UK economy is relatively well-placed to deal with them and we would expect the debt burden to start to diminish more quickly than the Chancellor has forecast, over the next five years.