The Guardian - 31.08.2019

Sat urday 31 Aug ust 2019 The Guardian •

4343

+22.86

7207.18

+13.65

3953.02

+63.90

26426.15

+243.44

20704.37

1.1059

FTSE 100 All share Dow Indl Nikkei 225 £/€ £/$

1.2179

+0.0031 -0.0025

Javid will break Tories’ own

fi scal rules, thinktank warns

Richard Partington

Economics correspondent

Sajid Javid is poised to break his fi rst

promise as chancellor by raising

government borrowing above limits

set in the Conservative manifesto, a

leading thinktank said yesterday.

The Resolution Foundation said

Javid was about to fl out his fi scal

rules governing how much the country

should borrow by increasing spending

in the run-up to Brexit.

In a move that has helped fuel spec-

ulation of a snap election, he will use

a spending round announcement on

Wednesday to give more detail to the

pledges made by Boris Johnson for

greater funding for health , schools

and police.

Although Javid promised this

week to stick to the borrowing rules

of his predecessor Philip Hammond ,

the thinktank said the UK economy

was teetering on the brink of reces-

sion, damaging public fi nances and

dramatically cut ting his room for

manoeuvre within those constraints.

Hammond set four fi scal rules to be

policed by the government’s tax and

spending watchdog, the Offi ce for

Budget Responsibility (OBR) , which

were part of the Tory manifesto when

Theresa May was prime minister.

As the party committed itself to

cutting the defi cit between govern-

ment spending and tax revenues, the

rules require Javid to keep public debt

falling as a percentage of gross domes-

tic product and to ensure borrowing,

adjusted for the state of the economy,

is below 2% of GDP in 2020-21.

The public finances should be

balanced by the middle of the next

decade, while the amount spent on

welfare must also remain below a

specifi c cash limit – currently £135bn.

Based on the most recently avail-

able forecasts on the state of the

economy and the public fi nances made

by the OBR in March, the Resolution

Foundation said Javid had enough

room to raise spending by about £14bn.

Critics say Javid may try to avoid

scrutiny by using forecasts made ear-

lier this year. The OBR must produce

forecasts twice a year but it will only

publish its latest assessments with the

next budget, the date of which has yet

to be confi rmed by the chancellor.

The UK economy has stalled over

the summer as global growth falters

and uncertainty over Brexit continues

to weigh down on the country, dent-

ing the strength of the public fi nances.

Public borrowing has also gradually

started rising. Whitehall departments

have had to spend more on staff wages

as they try to prepare for the 31 Octo-

ber deadline for leaving the EU.

The Resolution Foundation said

both factors had cut Javid’s spending

headroom to about £4bn for next year.

It added that promises made by John-

son since entering No 10 would cost the

Treasury about £6bn next year, while

there are expectations for further

spending announcements next week,

as well as tax cuts in future that would

undermine the fi scal rules.

Economists say Britain could raise

public spending after 10 years of aus-

terity – borrowing costs are at historical

low s and the defi cit is at a 17-year low.

But the Resolution Foundation

warned that breaking the Tory fi scal

rules would tarnish the UK’s inter-

national credibility at a time when a

no-deal Brexit looked very likely.

Torsten Bell, its chief executive ,

said: “ T he chancellor can clearly aff ord

to borrow more to spend on public ser-

vices. But it is far less clear that he can

aff ord to undermine economic cred-

ibility by professing to be bound by

fi scal rules that are likely to be incon-

sistent with the scale of spending rises

and tax cuts being planned.”

House prices

fl at as market

braces for

more turmoil

Rupert Jones

Brexit uncertainty is still weighing

heavily on the UK housing market,

which barely moved over the past

month , and could take a heavier toll

in coming weeks, analysts warn.

Nationwide building society

reported that house prices were fl at in

August as the continuing political and

economic turbulence left many buy-

ers and sellers sitting on their hands.

Average prices were effectively

unchanged month on month once sea-

sonal factors were taken into account,

though the annual rate of property

price growth nudged up to 0.6%, com-

pared with 0.3% in July. However, this

means annual house price infl ation

has now remained below 1% for nine

consecutive months.

The average UK house now costs

£216,096 according to Nationwide,

which is £1,567 less than the £217,663

reported by the lender a month ago.

Robert Gardner, the building

society’s chief economist, said the

housing market’s fortunes would

remain heavily dependent on devel-

opments in the broader economy,

“though uncertainty is likely to

continue to exert a drag on sentiment

and activity”.

Surveyors were reporting that new

buyer inquiries increased “a little ”,

while data on the number of property

sales pointed to a slowdown , he said.

Hansen Lu, a property economist at

the consultancy Capital Economics,

said that with the probability of a no-

deal Brexit rising, uncertainty was

likely to intensify. “As a result, we

suspect the rise in buyer demand

has probably already ended. In turn,

house price growth is unlikely to pick

up again this year,” he said.

Many commentators said a flat

market could almost be viewed as a

positive when the wider political back-

drop was so uncertain.

Jonathan Samuels , the chief

executive of the lender Octane Capital,

said: “Based on this week’s high polit-

ical drama, it’s looking like August

could be the quiet before the storm.”

Similarly, Jonathan Hopper , the

managing director of Garrington

Property Finders, said that as the

Brexit drama intensifi ed , the property

market would have to “hunker down ”.

Meanwhile, data from the Bank of

England for last month revealed that

the number of mortgages approved in

the UK hit a two-year high. UK lenders

approved 67,300 mortgages in July, up

from 66,500 in June. This is the high-

est fi gure since July 2017 but, said the

Bank, “remains within the very narrow

range seen over the past two years”. It

added: “Mortgage market activity has

remained stable.”

▲ Nationwide says the average UK

house now costs £216,096, which is

£1,567 lower than the July fi gure

PHOTOGRAPH: TOBY MELVILLE/REUTERS

‘Javid can aff ord to

spend more on public

services. It is far less

clear that he can

aff ord to undermine

economic credibility’

Torsten Bell

Resolution

Foundation

ell

n

Graeme Wearden

The UK has fallen to the bottom of the

G7 growth league table, after Brexit

uncertainty held the economy back

in the spring.

Every other advanced economy

performed better than Britain in the

second quarter of 2019, a ranking

confi rmed yesterday when Canada

was the last to report GDP fi gures for

the period between April and June.

Canada topped the G7 with strong

growth of 0.9% in the second quarter.

The US and Japan both posted solid,

if unspectacular, growth of 0.5% and

0.4% respectively.

The UK brought up the rear after

contracting by 0.2% in the second

quarter. Germany also shrank, by 0.1%,

while France picked up pace with 0.3%

growth. Italy had zero growth.

The UK’s second-quarter contrac-

tion was partly caused by stockpiling

in the run-up to the original Brexit

deadline at the end of March. This

dragged economic activity forward

into the fi rst quarter, meaning GDP

rose by 0.5% in the three months

between January and March, when

the UK was the third best performing

G7 economy after the US and Japan.

UK car production was also unu-

sually weak in the second quarter, as

factories moved their annual summer

shutdowns forward to April.

Ruth Gregory, a senior UK econo-

mist at Capital Economics, said these

erratic factors had dragged GDP down

in the second quarter.

Gregory predicted the UK would

return to growth in the third quarter

of 2019, avoiding falling into recession.

Companies are likely to be stockpiling

again, while the government’s no-deal

preparations could also boost growth,

she said.

But economic prospects beyond

31 October depend entirely on Brexit.

“If there is a no- deal Brexit, there will

probably be a recession at the turn of

the year,” Gregory said.

Brexit helps

send UK to

bottom of

G7 growth

league table

Source: Refinitiv

UK GDP shrinks by 0.2% in second

quarter

Quarter-on-quarter growth, %

0

0.2

0.4

0.6

0.8

-0.2

-0.4

CAN US JPN FRA ITA GER UK

RELEASED BY "What's News" vk.com/wsnws TELEGRAM: t.me/whatsnws