Chancellor says UK needs targeted investment to offset Brexit

Britains Chancellor of Exchequer Philip Hammond applauds as Prime Minister Theresa May speaks at the annual Conservative Party Conference in Birmingham, Britain, October 2, 2016. REUTERS/Toby Melville

BERMINGHAM: Chancellor of the Exchequer Philip Hammond said the UK government must drop its commitment to balancing the budget to allow “carefully targeted” investment, offsetting the economic shock that is forecast because of Brexit.

“Anecdotally we hear of businesses postponing investment decisions,” Hammond told BBC Radio 4’s Today programme yesterday at his Conservative Party’s annual conference in Birmingham, central England. “If we don’t intervene to counteract that effect in time, that will have an effect on jobs.”

Hammond cautioned that recent data, while showing economic strength, may not reflect the uncertainty businesses will feel once Britain actually starts the process of leaving the European Union. Prime Minister Theresa May, who appointed Hammond to replace George Osborne in the aftermath of the June 23 referendum that propelled her to power, used her own speech to the conference on Sunday to say she will trigger the process of leaving the bloc before the end of March. The pound fell after her remarks.

Hammond told LBC Radio he’s backing current projects such as the planned high-speed rail link to the North of England and promised “more investment in transport infrastructure, more investment in housing, more investment in broadband.”

“HS2 is a project which is about investment in Britain’s future,” he said. “It’s one of the big projects that will change Britain’s productivity performance.”

In his first major speech since he became finance minister, Hammond will tell the party conference that he’s breaking with Osborne’s policies, reiterating that the new government has dropped the target of achieving a fiscal surplus by the end of the decade. While he will underline that the deficit remains “unsustainable,” Hammond will call for a “new plan” to manage the nation’s finances in a “pragmatic way.”

“The British people elected us on a promise to restore fiscal discipline,” he will tell delegates, according to extracts released by his office. “The fiscal policies that George Osborne set out were the right ones for that time. But when times change, we must change with them.”

Hammond is due to detail his plans in his Autumn Statement to Parliament on Nov 23, including addressing any short-term uncertainties created by Brexit.

The post-referendum resilience cited by Hammond was underscored by a survey published yesterday showing UK factories had their best month in more than two years in September as the weaker pound sent export orders surging. Still, economists surveyed by Bloomberg see economic growth slowing to 0.7% next year, which would be the weakest performance since 2009.

“Despite the good economic data we’ve had, that is still the central prediction of economic forecasters that overall leaving the EU will have a negative effect on economic growth,” Hammond told the BBC. “Our job is to try to head off those outcomes, but we can only head them off if we’re honest about the fact that they may be out there and we plan to address them.”

Hammond will also announce measures with Communities Secretary Sajid Javid to boost house building, including a £3bil (US$4bil) fund to finance the construction of more than 25,000 new homes by 2020. – Bloomberg

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