Investment Clock insights

Chancellor's love bomb to first time buyers


Ian Kernohan

22 November 2017

The shape of Brexit is still the key determinant of the medium-term economic outlook, and further clarity on the UK's new trading arrangements will be more important than anything announced in this Budget. 
Constrained by his main fiscal rule to keep the structural deficit below 2% in 2020, the Chancellor's challenge was fourfold: make preparations for Brexit, re-energise the government's political fortunes, shore up his own position within the Conservative Party, and appeal to groups sceptical that the government is on their side, particularly younger voters.  The abolition of stamp duty for First Time Buyers on homes up to £300,000 was the headline grabbing measure. While the budget deficit has fallen faster than expected this year, Philip Hammond had limited room for manoeuvre.  The Office for Budget Responsibility (OBR) has downgraded its view on the prospects for economic growth over the next few years, to an extent that would probably not have happened when budget forecasts were made by The Treasury.  The GDP growth estimate for this year has been reduced significantly, from 2% to 1.5%, broadly in line with consensus and with no real improvement expected in 2018.  Poor productivity performance is the main reason for the OBR's pessimism, but there is now room for upside surprise in these growth forecasts.  Deficit forecasts have been reduced in the near term and total government debt is expected to peak as a percentage of GDP this year, so it wasn't all bad news.  
With deficit reduction still ongoing, albeit with a somewhat less aggressive fiscal tightening profile, there were limited implications for monetary policy in today's news.  The Bank of England has begun to withdraw the exceptional monetary stimulus put in place after the Brexit referendum, however we expect the pace of tightening to be very gradual.  

The shape of Brexit is still the key determinant of the medium-term economic outlook, and further clarity on the UK's new trading arrangements will be more important than anything announced in this Budget. 

Constrained by his main fiscal rule to keep the structural deficit below 2% in 2020, the Chancellor's challenge was fourfold: make preparations for Brexit, re-energise the government's political fortunes, shore up his own position within the Conservative Party, and appeal to groups sceptical that the government is on their side, particularly younger voters.  The abolition of stamp duty for First Time Buyers on homes up to £300,000 was the headline grabbing measure. While the budget deficit has fallen faster than expected this year, Philip Hammond had limited room for manoeuvre.  The Office for Budget Responsibility (OBR) has downgraded its view on the prospects for economic growth over the next few years, to an extent that would probably not have happened when budget forecasts were made by The Treasury.  The GDP growth estimate for this year has been reduced significantly, from 2% to 1.5%, broadly in line with consensus and with no real improvement expected in 2018.  Poor productivity performance is the main reason for the OBR's pessimism, but there is now room for upside surprise in these growth forecasts.  Deficit forecasts have been reduced in the near term and total government debt is expected to peak as a percentage of GDP this year, so it wasn't all bad news.  

With deficit reduction still ongoing, albeit with a somewhat less aggressive fiscal tightening profile, there were limited implications for monetary policy in today's news.  The Bank of England has begun to withdraw the exceptional monetary stimulus put in place after the Brexit referendum, however we expect the pace of tightening to be very gradual.  

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.