Philip Hammond ready to reset tax and spending plans as UK economy suffers big jolt

Change of tack: Chancellor Philip Hammond and Bank of China chairman Tian Guoli at the UK-China talks at the Bank of China’s office in Beijing today
AP
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Chancellor Philip Hammond today said he is ready to “reset” George Osborne’s tax and spending policies.

It came as a report suggested the UK economy had seen the biggest jolt than at any time since the financial crisis.

Output and orders were said to be falling for the first time since the recovery gathered speed at the end of 2012, while business optimism in the services sector hit a seven-and-a-half-year low, according to the closely watched Markit Flash UK Composite Output Index.

Chris Williamson, chief economist at Markit, said the update showed a “dramatic deterioration” in the UK economy since the Brexit vote on June 23.

Ruth Gregory, UK economist at Capital Economics, said it bolstered the case for a cut in interest rates in August. The pound fell on the Markit report, from euros 120.3 to 119.3.

The Chancellor’s comments in China suggested this year’s Autumn Statement may be expanded into an inflationary mini-Budget if necessary.

He 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.”

Treasury sources cautioned against expecting a major change of direction. This week the Bank of England said business uncertainty had “risen markedly” since the vote but there was “no clear evidence” of a sharp slowdown.

Analysts saw Mr Hammond’s words as the latest signal that he is prepared to sanction a significant increase in borrowing to invest in projects such as infrastructure that would create or protect jobs.

He and Theresa May have given signals that they are keen to avoid tax rises.

The Chancellor spoke in Beijing where he is meeting Chinese ministers ahead of this weekend’s convention of G20 finance ministers in Chengdu — the first assembly of global finance ministers and central bank governors since the EU referendum.

Borrowing is already higher than planned in Britain, hitting a worse-than-expected £9.7 billion in May. The current account deficit, at 6.9 per cent of earnings, is close to the all-time high of 7.2 per cent at the end of last year.

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