Hammond's Budget Focus Should Be Infrastructure, Economists Say

  • U.K. chancellor due to deliver spring Budget on March 8
  • Fiscal position has been helped by economy’s solid growth

The U.K. economy needs to be match fit for Brexit and infrastructure should be among Chancellor of the Exchequer Philip Hammond’s priorities in his Budget next week, according to economists.

More than 40 percent of respondents to a Bloomberg survey listed investment in projects including transport and communications as their No. 1 choice when asked what the Treasury should focus on. Corporate-tax reform and health spending came second, at 24 percent. Only 6 percent put housing first.

Philip Hammond

Photographer: Luke MacGregor/Bloomberg

While the economy has grown solidly since the June vote to leave the European Union and the budget deficit is forecast to come in less than officials predicted late last year, Hammond has indicated he’s not in favor of any giveaways. He’ll want to keep something in reserve to respond to any slowdown once Brexit is triggered this month. Major announcements are more likely to come in his end-of-year statement, now the main fiscal event of the year.

“The risks to both the short-term and longer-term outlook of the economy would be well served by a further easing of the purse strings,” said David Tinsley, chief European economist at Exane BNP Paribas in London. “A sensible package might involve personal and corporation-tax cuts, and more spending on infrastructure.”

Asked if Hammond will change the inflation measure the Bank of England uses to set interest rates, a majority of those surveyed said this will happen, though not at next week’s Budget.

The issue has arisen as the Office for National Statistics is making CPIH -- the consumer prices index including owner-occupiers’ housing costs -- its favored gauge of inflation from March 21. The BOE uses the current preferred measure, CPI, to formulate monetary policy, targeting an inflation rate of 2 percent. The Treasury said last week that CPIH is not currently a “national statistic” and there are no plans to change the target.

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