Modest fiscal stimulus likely from UK government at autumn statement next week

UK government is also expected to announce a modest fiscal stimulus at next week's autumn statement which is likely to offer limited support for the pound. UK Chancellor Philip Hammond is set to deliver his first Autumn Statement on November 23. It is the Chancellor's first opportunity to outline his priorities for taxes and spending in the wake of the Brexit vote.

UK's latest labour market report released on Wednesday provided further evidence that the negative fallout from Brexit has been limited so far. Resilience exhibited by the UK economy could be one reason why the government is likely to ease fiscal policy only modestly.

Chancellor Hammond at the Conservative Party conference sent out a clear message that 'the task of fiscal consolidation must continue'. With UK already running a tight budget deficit of over 4 percent of GDP, government will be wary of easing fiscal policy more significantly. At the conference, Hammond signalled that the government will focus on “targeted” decisions around very high value infrastructure investment.”

UK’s manufacturers expect the Chancellor will use the opportunity to tackle the fallout from political uncertainty and reassure nervous businesses by announcing new measures to boost investment and growth. The British Bankers’ Association (BBA) has urged the Chancellor to fight for passporting rights and influence from outside the bloc and called for clarity on possible “transitional arrangements” with the EU.

After having scrapped predecessor George Osborne’s pledge to balance the books by the end of this parliament, Hammond now has some leeway to borrow more money. Borrowing this year is estimated to hit £60.5bn, up from an official projection of £55.5bn in March. Hammond will likely "prepare for more austerity" in the next parliament.

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