With a surprising focus on sustainability and environmental issues, Hammond was seen to be playing a very political game, undoubtedly trying to avoid giving airtime to the “shambolic” exit negotiations.
Brewin Dolphin investment manager Wayne Berry says the statement was “upbeat and reassuring”, with its flurry of positive economic messages: inflation set to remain around target 2%; growth forecasts revised downward in the short-term, but with subsequent years looking set for pick-up; and promising wage inflation against full employment.
“With the UK economic forecast set to grow, cumulatively, over the next five years was quite pleasant. It’s nice to know someone is looking at something other than the B-word. He is just getting on with his job, securing the economy and public finances,” he says.
A pitch for another job?
But Ben Yearsley, director at Shore Financial Planning, thinks Hammond may have gone even further than getting on with his own mandate and used the opportunity to pitch for someone else’s.
“For a Chancellor, I did notice how little he talked about the economy and economics and how much of it seemed to be devoted to things outside his remit.
“He covered off knife crime, there was a significant focus on the environment, he covered housing… there was so much non-economic stuff in there, you could argue it was more a political statement than an economic one.
“It felt almost like a pitch, as though he was positioning himself for a run at the top job.”
Berry shared the view the speech smacked of political point-scoring, albeit in a positive fashion.
“The one main takeaway was that this time around I took more notes on sustainability than anything else. Not only economic sustainability but there was a big focus on the environment, almost like he was adopting the ‘Blue Planet’ approach to saving the world, which is ultimately the right thing to do, and he may also generate a few more positive headlines as a result.”
Hammond’s strong rebuke of no deal
Hammond appeared to be calling on the entire house, including May, to relinquish their stubbornness to avoid a no deal outcome.
“Leaving with ‘no deal’ would mean significant disruption in the short- and medium-term and a smaller, less prosperous economy in the long-term, than if we leave with a deal.
“Higher unemployment, lower wages, higher prices in the shops… is not what the British people voted for, which is why all of us have a solemn duty to put aside our differences and seek a compromise on which this House can agree, that is in the national interest,” he said, addressing the House of Commons.
While Hammond’s ‘deal dividend’ might have felt like a last-ditch attempt to persuade those against May’s plan to get on board, Silvia Dall’Angelo, senior economist at Hermes Investment Management thinks it will be a waste of time.
“He might have offered a three-year spending review before the summer recess, if a deal is approved, but I’m not sure this promise will help to reach a deal in Parliament.”
She explains that Brexit being such a major event and parliament – like the country – being so deeply divided on it, such a relatively small fiscal giveaway won’t really make a difference towards achieving consensus.
Economy in decent shape despite Brexit mess
While Berry says the jobs figures gave reason for optimism, especially the more robust headline that 96% of net new jobs were full-time, Dall’Angelo was a bit more sceptical.
“The tax revenues reflected higher-than-expected wage inflation, with the OBR saying this pattern was likely to hold for the next few years, plus interest rates were also lower than the OBR assumed in October,” she says.
But on the downside, the economist explains that the downward revision based on recently softer data, followed by a rebound, simply followed that put out by the Bank of England in its latest forecasts.
“There was nothing really ground-breaking there, and I think there is actually too much optimism on wage inflation, with more chances to get better fiscal numbers going forward – but obviously all hinges on Brexit developments.”
While the ‘deal dividend’ may not go quite so far as to convince MPs to back May, the reality, Berry says, is that in spite of the “shambles” of Brexit, the economy is still in good shape, and businesses are still investing, although possibly at restrained levels.
He says irrespective of whatever deal gets done – even if the outcome is no deal – even the smallest degree of greater certainty, will be encouraging.
“Once certainty has been restored there will be a return to ‘activity’, as all this pent-up investment – that hasn’t happened because of uncertainty – will start to happen in one way, shape or form.”