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Spring Statement gets mixed response

13 March 2018

The Chancellor’s Spring Statement was met with mixed response from industry experts, with little in the way of new or unexpected policy announcements.

The Chancellor used today’s Statement as an opportunity to unveil stronger economic growth, forecast to be 1.5% in 2018, up 0.1% on the previous projection. He also said the Office for Budget Responsibility expect inflation to fall over the next 12 months, and wages to rise faster than prices over the next five years.

In addition, the Chancellor noted that the UK’s public finances have reached a “turning point”, with borrowing down and the first sustained fall in debt in 17 years. In 2009-10, the UK borrowed £1 in every £4 that was spent. The OBR expect that number to be £1 in every £18 this year.

However, while Schroder’s chief economist Keith Wade described this as “good news,” he said much of it was anticipated and “still fairly cautious”, with only a modest upward revision for economic growth.

Wade said: “We should not be surprised; it’s too early in the political cycle for anything more bullish and the Chancellor himself said that forecasts are there to be beaten. No mention though of the UK being the weakest economy in the G7 at a time when the rest of the world is booming.”

Steven Cameron, pensions director at Aegon, said the updated forecasts of lower price inflation and a return to real earnings growth will have “knock-on implications” for future increases to the state pension and those who have final salary pension schemes.

He commented: “While Brexit is grabbing almost all Government’s attention, it’s still disappointing not to have heard even a little on other longer term Government priorities in a number of key areas.

“The Government announcement earlier this week that 10 million Brits can expect to live to age 100 is a stark reminder of just how important it is to tackle the issue of social care funding. A growing number of us will need some form of long term care in later life and funding implications are huge. To allow people to start planning for their share, the Government needs to advance urgently its proposals on how much the state will pay and how much individuals will need to fund for themselves.

“Similarly, while automatic enrolment means 9 million extra employees are saving for their retirement through workplace pensions, the self-employed are excluded. With the Chancellor saying the Conservatives are the champions for small businesses, we need new policies to stop self-employed becoming second class citizens in retirement.”

Boosting productivity

Despite the Office for National Statistic’s cautious optimism about UK productivity in late 2017, today’s statement failed to announce an upgrade to the productivity outlook.

Angus Dent, CEO of ArchOver, said the lack of upgrade was “just another chapter in a now-familiar story – the government just can’t jolt the economy out of its lethargy.”

According to ArchOver, the onus is upon businesses to take matters into their own hands.

Dent said: “If we can’t get out of this rut, we won’t stand much chance of making a smooth economic transition out of the EU next year – we won’t have the leeway to absorb any unexpected shocks. Despite that, Philip Hammond used today’s Spring Statement speech to essentially sit on his laurels and avoid taking any new decisive action.

“While the Chancellor rests easy, British business must get to work. Given that the OBR continues to find the government’s position on SME productivity ineffectual, business owners need to take matters into their own hands and look to fund bolder new business projects and models.

“They should use alternative financing options to fund new services, hire more staff and improve working conditions. You need money to make money, so UK companies must invest in driving productivity. If the Government won’t do it, entrepreneurs must take the initiative.”

Home owners

However, there was good news for those with a mortgage, who could benefit if the government has greater “breathing space” when it comes to interest rate hikes thanks to lower inflation estimates.

Russ Mould, investment director at AJ Bell, said: “Even if the stock market looks to be shrugging, the debt markets look to be pleased. The OBR’s minor cuts to its estimates for inflation may help a little on this front too, giving the Bank of England breathing space when it comes to its latest interest rate decision. This helps anyone with a mortgage, at least indirectly, so neither the chancellor’s long-term debt reduction policy nor his statement should be taken lightly.

“The healthier the nation’s finances are, the more cheaply the Government can borrow and the interest rate at which the government can borrow that forms the base of the calculation that sets the cost of mortgages.

“Anyone with a home loan may therefore get some knock-on benefits from today’s statement – providing the OBR is correct in its assessment of inflation and an unexpected economic downturn does not blow the budget deficit reduction forecasts off course.”