Britain needs a new fiscal plan to navigate economic turbulence caused by Britain’s vote to leave the European Union, finance minister Philip Hammond said on Monday, stressing the need to balance spending cuts with infrastructure investment.
On Sunday, Prime Minister Theresa May told the Conservative Party annual conference she would formally trigger the EU exit by the end of March next year, at which point Britain will enter into an initial two-year negotiating period.
Speaking ahead of his conference speech, Hammond said data from the first half of the year showed the economy was running at “eight out of 10”, but that business and consumer confidence could suffer during the long Brexit process.
“We must expect some turbulence as we go through this negotiating process,” Hammond told BBC television.
“There will be a period of a couple of years or perhaps even longer when businesses are uncertain about the final state of our relationship with the European Union and during that period we need to support the economy.”
He reiterated his decision to push back the government’s target to turn its 4 percent 2015/16 budget deficit – among the biggest of the world’s rich economies – into a surplus by 2020. He has yet to set a new target date.
In his speech due later on Monday, Hammond is due to say that while budgetary discipline remains crucial for the country, there is also a need to invest in building a fairer economy.
“The British people elected us on a promise to restore fiscal discipline, and that is exactly what we are going to do,” he will say according to extracts from the text of his speech provided by his office.
“But we will do it in a pragmatic way that reflects the new circumstances we face… A new plan for the new circumstances Britain faces.”
Last week, official data showed Britain’s giant services sector grew strongly in July, giving the clearest sign to date that the economy has not suffered a major slowdown after the EU referendum.
Hammond will promise to deliver a “clear, credible fiscal framework” to reassure investors that he will continue to bring down the deficit by controlling public spending while also focusing on investment needed for long-term growth.
“We need to keep the lid on day to day spending, we need to make government more streamlined and efficient but I do think there is a case that we should look at very carefully for targeted high value investment in our economic infrastructure,” he told BBC radio.
“In the short term it supports the economy, supports jobs, supports economic growth and in the long term it helps to make Britain more productive.”
Hammond’s full fiscal plan is due to be delivered on Nov 23.
He has previously played down expectations of a surge in public spending to offset any economic hit from the Brexit vote, but said he could fund modest infrastructure projects if needed.
In the first sign of how he intends to use his new-found fiscal flexibility, he will set out on Monday a new 2 billion-pound ($2.58 billion) borrowing plan to help address a long-term housing shortage.