Chancellor Philip Hammond outlined a £44 billion investment in the housing market in the Budget on Wednesday, but critics are concerned about the UK's economic downgrade. The Tradefair team brings you the highlights from Budget 2017 and assesses what it means for the markets...
"These represent the weakest expectations on growth over a forecast period in the modern era and probably the largest downgrades since the advent of the Global Financial Crisis. In light of growth upgrades in major, key, trading partner countries, these figures are even more disappointing. Thank god for the tax freeze on spirits, beer and wine because, given these numbers, we’re going to need it.”
- Jeremy Cook, Chief Economist at WorldFirst
Chancellor of the Exchequer Philip Hammond pledged to improve the UK's housing crisis in his latest Budget speech, but experts are concerned about his approach.
He promised a number of reforms including the abolishment of stamp duty for first-time buyers of properties under £300,000, while those purchasing property worth up to £500,000 would pay much lower tax than they do currently.
An estimated £44 billion of investment, loans and pledges were outlined in Hammond's speech to increase the amount of new homes being built to 300,000 from 217,000 last year.
But the independent Office for Budget Responsibility (OBR) warned the main outcome of these reforms would be to raise house prices, potentially putting the market at even more risk. It also estimated that just 3,500 additional homes would be purchased each year as a result of the cuts.
Bad news for Brexit talks?
Hammond's Budget 2017 speech was overshadowed by news that the UK has received its biggest downgrade in its economic prospects since the financial crisis, giving the country much less room for error as it withdraws from the European Union.
The Institute for Fiscal Studies (IFS) called it "highly unlikely" that the Chancellor would meet his target of balancing the books by the mid-2020s.
"To get there we would have to have another round of spending cuts," IFS director Paul Johnson told the BBC. "Given how hard it has been to get where we are, I think that is going to be pretty tough."
Official forecasts were significantly reduced for the next five years, spurred on by weaker productivity growth.
Despite this, the Chancellor assured the public that the Budget's investments would see the UK welcome "a future that would be full of new opportunities", insisting the economy was at a "turning point".
'Weakest expectations on growth in the modern era'
Jeremy Cook, Chief Economist at WorldFirst, told the Independent: "Focus will naturally fall on the stamp duty rabbit but the real headline should be the swingeing cuts to the UK's growth forecasts.
"These represent the weakest expectations on growth over a forecast period in the modern era and probably the largest downgrades since the advent of the Global Financial Crisis. In light of growth upgrades in major, key, trading partner countries, these figures are even more disappointing. Thank god for the tax freeze on spirits, beer and wine because, given these numbers, we're going to need it."
The government will invest £1.5 billion to help ease problems with the controversial universal credit system, reducing waiting times for families, and there would be a raise in the national living wage, taking it to £7.38 from April. There was also an increase in the income tax threshold, meaning people can now earn £11,850 before they start to pay and the rate for higher contributions was taken up to £46,350.
Hammond announced that spending would increase by £1.6 billion for the NHS, with £350 million being invested this winter.
An unprecedented period of stagnant pay
Despite these measures to ease the strain on households, the sceptical forecasts mean that Brits are experiencing an unprecedented period of stagnant pay.
The housing measures will not distract from the unpleasant economic outlook, with prospects looking much worse in this year's Budget than before the EU referendum. The OBR cut its growth estimates for the UK, reducing it to just 1.5 per cent for sustainable growth, 40% lower than it was two years ago.
Hammond has said he hopes to prove the gloomy forecasts wrong with his Budget proposals.
Speaking on BBC Breakfast News, he said "confidence will return, certainty about the future will return, businesses will start investing, consumers will start buying big ticket consumer items again and that will help to get our economy growing again faster".
Over the next five years, the Chancellor committed to borrowing £53 billion more and claimed there would be another period of austerity for public services to balance the books.
There would also be £31 billion set aside for a national productivity investment fund to extend its duration for a further year, increasing its initial cost from £23 billion.
Brexit and market reaction
The matter of how the UK will withdraw from the single market without further damaging the economy was a top concern for many experts listening into the Budget.
Hammond announced an additional £3 billion would be invested to ease the withdrawal from the EU and said he was prepared to allocate further funds if necessary. The Chancellor said achieving progress on a Brexit plan would be a "top priority in the weeks ahead".
Showcasing their resilience once again, the markets appeared to shake off much of the concerns around the UK's growth prospects. London's FTSE 100 share index outperformed its European peers, rising 0.1% to 7,453.65, marking its highest close in eight sessions.
This performance was pushed by strong advances in financial, energy and materials stocks.
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