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Philip Hammond ready to 'reset' economic policy if Brexit sparks downturn

Published 22/07/2016

Chancellor Philip Hammond said he is ready to use the Autumn Statement mini-Budget to set the economy on a different course if necessary
Chancellor Philip Hammond said he is ready to use the Autumn Statement mini-Budget to set the economy on a different course if necessary

Tax and spending policy could be "reset" if the economy takes a downturn following the EU referendum result, Philip Hammond has said.

The Chancellor said he is ready to use the Autumn Statement mini-Budget to set the economy on a different course if analysis shows the Brexit vote has had an impact.

Mr Hammond, who is visiting China, said: "Over the medium term we will have the opportunity with our Autumn Statements, our regular late-year fiscal event, to reset fiscal policy if we deem it necessary to do so in light of the data that will emerge over the coming months showing us exactly what is happening in the economy post the referendum decision."

The Chancellor inherited a shaky set of public finances, with borrowing hitting a worse-than-expected £9.7 billion in May and a current account deficit which, at 6.9% of gross domestic product, remains close to the all-time high of 7.2% seen at the end of last year.

The comments came as a new report revealed the UK economy has slumped at its fastest rate since the financial crisis in the wake of Britain's vote to leave the European Union.

The closely-watched Markit Flash UK Composite Output Index plummeted to its lowest level since April 2009, falling to 47.7 in July, compared to 52.4 in June. A reading above 50 indicates growth.

The data, collected between July 12 and 21, provides a stark picture of the state of the economy following the Brexit vote, with City experts now warning that Britain could be heading for a recession.

Institute for Fiscal Studies director Paul Johnson said the Chancellor is preparing to deal with a significantly worse economic situation in the autumn.

"What Philip Hammond has said today is a fiscal reset, which I take as meaning he will want to think through what he wants to do in terms of tax and spending, precisely in the context of expecting the economic news come the autumn to be significantly worse than it looked back in March when the current set of policies were made.

" There are lots of concerns in terms of uncertainty, and business reacts to uncertainty," he told BBC Radio Four's The World At One.

On the output index report, Mr Johnson said: " It's a useful piece of information, but, as ever, one should be careful of over interpreting one single piece of information.

"It certainly hit a trough during the 2009 recession in the way that you would expect it to do. It also went down a lot in the wake of the dot com crash, and indeed, after 9/11, and that didn't presage recession.

"It is investment which is going to be the key determinant of how we get through this next period. And if people aren't confident to invest in the new machinery, or invest in training, or whatever, then that's not just going to have a short run, but potentially, a long run effect on the economy."

Shadow chancellor John McDonnell accused Mr Hammond of "dithering".

He said: "At present the failed austerity policies of (former chancellor) George Osborne are still going ahead and the Government are still sticking to the failed fiscal framework.

"This means that Britain is on hold until Philip Hammond makes up his mind. The Tories clearly had no plan for Brexit and are making it up as they go along.

"As today's survey of business activity shows, our country can't wait for months on end whilst the Chancellor dithers about what to do instead. We need action now to combat the economic shock of the Tories' Brexit and their lack of planning.

"The Chancellor needs to immediately reverse the planned cuts to public investment, bring forward shovel-ready projects across the country to help build an economy where no-one is left behind, as I set out in my speech on Monday."

Liberal Democrat economic spokeswoman Baroness Kramer said: "It's time for those who campaigned for Leave to apologise to the country. They claimed the economic impact would be negligible, yet one month on from the vote the PMI report shows we are on the edge of another 2008 crash.

"They can no longer pretend that all is well. Output and orders are falling across key sectors, particularly the service sector which forms the foundation of our economy. These figures will have a real world impact - it will mean businesses going under, jobs being lost and families struggling.

"Those who led the charge for Brexit are now in key positions in Government. Yet a month on from the vote they will have no plan for cleaning up the mess they have created. Until they come clean, every job lost is on their head."

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