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This Wednesday the UK’s new Chancellor of the Exchequer, Phillip Hammond, delivers his first Autumn Statement. This is not a budget, so expect the statements to be of less significance.

Here’s a quick rundown of what’s expected on the 23rd at 12.30pm:

  • The economy is growing less than forecast before Brexit, but it is still growing
  • We are still running a large deficit, limiting government’s ability to spend
  • Increased spending on ‘targeted’ infrastructure projects like roads and railways
  • Moving away from cheap money with measures to help small house builders
  • Government still needs to retain credibility on fiscal policy
  • Everything’s still to play for on Brexit – we are no clearer on what the government will do
  • Government ministers still forming a collective view on Brexit
  • Unlikely to have much clarity on Brexit before March 2017
  • Financial services are very important to the UK economy
  • Control of our borders is non-negotiable (movement of money is fine, movement of people is not)
  • Osborne’s pledge to ‘balance the books’ by 2020 is most probably going to be abandoned

 

The Office for Budget Responsibility is expected to paint a gloomy picture of lower growth, higher inflation and a larger than expected deficit as the UK negotiates its way out of the EU. This new forecast will form a central part of Hammond’s autumn statement.

The OBR is also expected to say that consumer prices will rise at a faster rate than it was expecting back in March, as the sharp drop in the value of the pound since the Brexit vote pushes import prices up and feeds through to the high street. Economists expect the OBR to revise up its forecasts for inflation in 2017 from 1.6% to closer to 3%.

 

The three key drivers of GBP

  • The growth outlook and state of public finances. How good are our growth prospects? And how bad is the debt in the UK?
  • Any Brexit news tends to be negative for GBP, but there may not be anything of substance within the autumn statement.
  • Infrastructure spending and austerity-lite are both pro-growth/inflationary – which would boost GBP. Also keep an eye on our US cousins with Trump making waves.

 

Can GBP keep recovering?

Of late, we’ve seen GBP recovering against EUR, AUD and CAD and holding its own against the charging USD.

The Autumn Statement will be an interesting test of that trend.

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