BIRMINGHAM, England — Britain’s
chancellor of the Exchequer, Philip Hammond, on Monday promised
investment in infrastructure projects and pledged to step in to mitigate
“turbulence”
resulting from the country’s decision to withdraw from the
European Union, a significant shift in British economic policy.
The remarks came on the heels of a tough speech by Prime Minister Theresa May
on Sunday, in which she suggested that she would put the right to
control immigration into Britain at the center of negotiations for
Britain’s exit from the bloc, even if doing so put the country’s access
to European markets at risk.
Mrs.
May’s speech intensified worries in the financial markets about the
economic impact of Britain’s decision to exit the European Union, a
process known as Brexit. On Monday, the pound fell to its lowest level
against the euro since 2013, reflecting concerns in the currency markets
about the terms of the withdrawal, for which negotiations will start by
the end of March.
Addressing
the annual convention of the Conservative Party on Monday, Mr. Hammond
promised to make a success of the decision in the June referendum to quit the 28-nation bloc — a vote that transformed the political and economic landscape — but argued that there was no room for “complacency.”
“Throughout
the negotiating process, we are ready to take whatever steps are
necessary to protect this economy from turbulence,” Mr. Hammond told
delegates gathered in Birmingham. “And when the process is over, we are
ready to provide support to British businesses as they adjust to life
outside the E.U.”
What’s Next for Business After ‘Brexit’?
More than a month on, little is clear. Britain’s trading
relationship with the E.U. looks to be in limbo. Companies are
reassessing their long-term investments in Britain. Here’s what’s
happened so far.
He
said that economic data since June had been encouraging, but he argued
that, “fiscal policy may also have a role to play” in the coming months.
Since
becoming chancellor of the Exchequer in July, Mr. Hammond has lost
little time in jettisoning the fiscal targets of his predecessor, George
Osborne, whose six years in government were dominated by spending cuts
and efforts to balance the budget.
Mr.
Osborne had aimed to restore government finances to a surplus by 2020.
But that objective has now been discarded, with Mr. Hammond signaling
his willingness to borrow for investment.
In
essence, Mr. Hammond’s job description appears to be to mitigate the
possible negative impacts from the vote that many analysts expect, at
least in the short to medium term.
Those
fears were compounded by Mrs. May’s speech on Sunday, which was widely
interpreted as a sign that Britain’s membership in the European single
market of around 500 million consumers would come to an end. Countries
fully integrated into that market currently accept free movement of
people across European borders, a right that Mrs. May has pledged to
end.
The
economic costs of such a move could be significant. In an analysis, two
economists at Berenberg Bank in London wrote that a “so-called hard
Brexit, in which the U.K. places heavy restrictions on inflows of E.U.
economic migrants, risks doing the most damage to the U.K. economy in
the long run.”
WHAT IS 'BREXIT'?
The decision by British voters to exit the European Union. The formal process for doing so has not begun, as power struggles have consumed both of Britain's major political parties.WHAT IS THE E.U., AND HOW DOES IT WORK?
It is an economic and political union of 28 nations, intended to deliver peace, stability and prosperity.- The European Council, made up of national leaders, sets the overall political agenda but it cannot pass laws.
- Laws are proposed by the Council of the European Union — ministers from the member governments — and by the European Commission, the bloc's executive arm, which has extensive regulatory powers.
- The laws are approved (or rejected) by the 751-member European Parliament, which is elected directly by European citizens.
In
such a situation, Holger Schmieding and Kallum Pickering of Berenberg
wrote, the right of Britain-based banks to offer financial services
across the bloc would most likely be lost and “a hard Brexit could also
put free access to the E.U. market for goods at risk.”
“Since
a large proportion of U.K. voters who opted for the popular-Brexit vote
may have done so for economic reasons such as low pay, poor job
prospects etc.,” they added, “a hard Brexit would only worsen these
circumstances and could eventually entail negative domestic political
consequences.”
In
his speech, Mr. Hammond acknowledged that because of the referendum,
“many businesses which trade with the E.U. are uncertain about what lies
ahead.”
He
said that the country’s long-term fiscal plans, which are expected to
be announced in November, would address the consequences of short-term
uncertainty while recognizing “the need for investment to build an
economy that works for everyone.”
“Our
stock of public infrastructure — like our roads, railways and flood
defenses — languishes near the bottom of the developed-countries’ league
table after decades of underinvestment,” Mr. Hammond said, promising
“targeted public investment in high-value infrastructure.”
That,
he added, could create the “most outward-looking, most dynamic, most
competitive, high-wage, high-skilled, low-tax economy in the world.”
In a statement
on Monday, Carolyn Fairbairn, director general of the Confederation of
British Industry, the country’s biggest lobbying group for businesses,
said the government was “right to adopt a more flexible approach to
fiscal policy at this point, but it remains essential that public
finances are sustainable over the economic cycle.”
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