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Hammond says UK will need new Budget strategy in event of no-deal Brexit

Chancellor Philip Hammond has warned that the Government will have to adopt a new economic strategy if Britain leaves the European Union without a deal with Brussels.

On the eve of the Budget, Mr Hammond said he would have to tear up his plans for the economy and set out a new Budget if there was no Brexit deal when the UK leaves the bloc in March 2019.

“If we were to leave the European Union without any deal – and I think that’s an extremely unlikely situation but of course we have to prepare and plan for all eventualities as any prudent government would – if we were to find ourselves in that situation then we would need to take a different approach to the future of Britain’s economy,” he told Sky News’s Sophy Ridge on Sunday programme.

“We would need to look at a different strategy and frankly we’d need to have a new Budget that set out a different strategy for the future.”

He added: “We would want to see how markets and businesses and consumers responded to that.

“Then, as any responsible government would, we would take appropriate fiscal measures to protect the economy, to prepare us for the future and to strike out in a new direction that would ensure that Britain was able to succeed, whatever the circumstances we found ourselves in.”

The Chancellor also hinted he would use his Commons statement on Monday to provide additional funding to smooth the transition to Universal Credit amid warnings low income families are being driven into debt.

“I’ve already put over £2 billion pounds into, over the last two Budgets, into smoothing that transition,” he said.

“We continue to look at how this process is working and if we find cliff edges and difficulties, frictions in the move from the old benefits system to Universal Credit then of course will always try to smooth those out and be pragmatic about it.”

In other measures, the Chancellor is expected to announce £28.8 billion to upgrade England’s motorways and other major arterial roads in a drive to invest in the UK’s infrastructure.

In an interview with The Sunday Telegraph, he also hinted there would be more money for defence and superfast broadband when he sets out his plans in the Commons.

Mr Hammond also signalled his determination to pursue a digital tax to ensure internet giants like Facebook pay a greater share of their profits into the Exchequer.

The Chancellor was handed an unexpected pre-Budget boost by the Office for Budget Responsibility, which suggested stronger than expected tax receipts and slower Government borrowing could hand him an additional £13 billion.

There is a real sense that it is just simply unfair that these very large internet companies are not paying their fair share of tax in the UK

Philip Hammond

As well investing in the road network – with a further £420 million for councils to repair potholes – the Telegraph reported he was preparing to spent at least a quarter of a billion pounds to help connect rural areas to the high speed internet.

After having previously having clashed with Defence Secretary Gavin Williamson over military spending, Mr Hammond indicated there would be extra cash in the Budget for the armed forces.

The Telegraph said there could be a cash injection for the military of up to £1 billion ahead of a long-term spending settlement next year.

“You are looking at someone who was defence secretary for three years. I absolutely get the problems and the challenges in defence,” he said.

Mr Hammond, who raised the prospect of a digital tax on the internet giants in his Conservative Party Conference speech in Birmingham, said the Government still hoped to get international agreement on the issue.

However, if that proved impossible, he indicated the UK was ready to act alone.

“British people have a really very strong sense of fairness, and there is a real sense that it is just simply unfair that these very large internet companies are not paying their fair share of tax in the UK,” he said.

“And when you get a really strong, across the board, sense of unfairness among the population something has to be done.”

Source: Shropshire Star

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UK budget and Bank of England take back seat to Brexit drama

Britain’s budget announcement on Monday and a “Super Thursday” at the Bank of England would normally be key moments for the world’s fifth-biggest economy, but this time they are likely to be overshadowed by the drama of Brexit.

Finance minister Philip Hammond and Bank of England Governor Mark Carney have little option but to sit on the fence as they wait to see whether a no-deal exit from the European Union, which they warn would harm the economy, can be averted.

Both men have other business they want to get on with.

Hammond is under pressure from Prime Minister Theresa May to end a decade of austerity to see off a rise in popularity of the opposition Labour Party.

At the BoE — where an interest rate decision and economic forecasts are due to be announced on Thursday — Carney and his fellow policymakers want to progress with their plan to raise borrowing costs gradually over the coming years.

That would allow the British central bank to follow the lead of other central banks, especially in the United States and Canada, which are dismantling 10 years of massive stimulus.

Expectations of another rate hike by the U.S. Federal Reserve in December are likely to grow if the monthly payrolls report on Nov. 2 shows further jobs growth and rising pay.

In the euro zone, data on economic growth and inflation on Tuesday and Wednesday will show whether the recovery in the single currency area has kept pace.

But in Britain, with Brexit just five months away, things are much less clear cut.

BREXIT FOG

There is no sign of a Brexit breakthrough with Brussels, in large part because May’s Conservative Party is riven over how close Britain should remain to the European Union after it leaves the bloc.

“The budget is likely to be something of a holding exercise until the Brexit fog clears and the MPC is likely to remain in a state of inertia until there is a bit more clarity on the state of the Brexit negotiations,” Ruth Gregory, an economist with Capital Economics, a research firm, said.

When he stands up in parliament on Monday afternoon, Hammond is expected to use his high-profile budget speech to try to cool the Conservative rebels by dangling the prospect of higher spending in the future, as long as a Brexit deal is done.

Britain’s economy has slowed since the 2016 referendum decision to leave the EU. But it has not suffered as badly as many forecasters expected, giving Hammond some fiscal wiggle room to fund higher health spending already promised by May.

Hammond might get further help if Britain’s budget forecasters scale back their estimates of future deficits, as they have suggested they will.

But his ability to ramp up spending in other areas depends most on avoiding a new shock to the economy.

A no-deal Brexit would slash economic growth to just 0.3 percent a year in 2019 and 2020 compared with 1.9 and 1.6 percent if there is a deal, the National Institute of Economic and Social Research estimated on Friday.

Britain’s budget deficit would stop falling and would rise under a no-deal scenario, according to its forecasts.

Looking further ahead, Hammond has suggested he will need to raise taxes to help fund higher public spending.

SIGNS OF PAY “NEW DAWN”

But the prospect of getting controversial measures passed in parliament, where the Conservatives have no outright majority, is probably too daunting at a time of heightened Brexit tensions.

For the BoE, the Brexit stakes are high too.

It has begun raising interest rates from their crisis-era levels and its chief economist has said he sees signs of a “new dawn” for British workers’ pay, long the missing link in the country’s recovery from the financial crisis.

But most economists think it will wait until May to raise rates again, assuming Britain leaves the EU with a deal.

“In any other situation, we suspect the Bank of England would be looking to increase interest rates pretty soon,” ING economists said in a note to clients on Friday.

“But inevitably, Brexit remains policymakers’ number one consideration, and given that there may still be some time before we know for sure whether a deal will be in place before the UK formally leaves the EU, there is a risk growth slows as businesses and consumers grow more cautious.”

Source: UK Reuters