Prime Minister Rishi Sunak, who has taken on the unenviable task of restoring Britain’s credibility in international markets, said on Wednesday that he would delay the announcement of a major economic plan by two and a half weeks as he seeks more time to make the “right decisions.”
Jeremy Hunt, the chancellor of the Exchequer, will deliver the fiscal statement on Nov. 17, instead of Monday. The statement is set to lay out spending and tax policies in line with lowering Britain’s debt burden. It will be accompanied by forecasts from the Office for Budget Responsibility, an independent government watchdog that will assess the impact of the government’s policies on the economy and public finances.
Mr. Sunak told his Cabinet ministers that it is “important to reach the right decisions and there is time for those decisions to be confirmed with Cabinet,” according to a readout of his first meeting with ministers on Wednesday morning.
The Oct. 31 date was a legacy of Liz Truss’s short and turbulent tenure as prime minister. The policy statement was scheduled as part of an effort to restore calm to the financial markets after Ms. Truss’s tax-cutting plans on Sept. 23 provoked turmoil, leading to a plunge in the pound, soaring government bond yields and an intervention by the central bank.
Investors have cheered Mr. Sunak’s quick elevation to the role of prime minister and the scrapping of most of Ms. Truss’s policies, and the markets were unruffled by the delay in the policy announcement. The pound is trading above $1.15, recovering its losses since the September fiscal plan, and bond yields have dropped substantially, bringing down the government’s borrowing costs.
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Mr. Sunak’s previous experience steering Britain’s public finances as chancellor through the pandemic, and the accurate warnings he gave over the summer about the risks of Ms. Truss’s polices, appear to have earned him some flexibility. He has also offered a clear break from Ms. Truss and been quick to show deference to institutions such as the Office for Budget Responsibility and the Bank of England.
Still, the fiscal statement poses challenges to Mr. Sunak’s nascent government.
Mr. Sunak, alongside Mr. Hunt at the Treasury, will need to strike a balance between meeting the market’s demand for strict fiscal discipline without inflicting economic pain. The British economy is already experiencing a slowdown, with some indicators pointing at a recession, as high inflation chokes off consumer spending.
Mr. Hunt has said there would be decisions of “eye-watering difficulty” and has asked every government department to find ways to save money. Economists have warned that there’s little room for already stretched departments to make cuts, especially when there are so many large demands on public spending.
The government is already planning to spend tens of billions of pounds shielding households and businesses from high energy costs. Inflation is eating away at the value of previous spending commitments, which the government is under pressure to top up. Public sector workers are demanding pay raises, with many sectors considering strikes. The National Health Service is overburdened and struggling to reduce a mammoth backlog of cases. And schools are warning of dwindling financial reserves.
Tony Danker, the head of the Confederation of British Industry, warned on Tuesday of the risk of a “doom loop” in the British economy, reminiscent of the austerity era after the 2008 financial crisis, when government spending cuts lead to low productivity and economic growth.
“If all there is is tax rises and spending cuts, and there is nothing in there about growth, the country could end up in a similar doom loop where all you have to do is keep coming back every year to find more tax rises and more spending cuts because you’ve got no growth.” Mr. Danker told the BBC.
One of the consequences of delaying the fiscal plan is that it will now come after the Bank of England’s next policy meeting, set for Nov. 3.
The earlier date would have allowed officials at the central bank to assess the government’s policies and then decide how high to raise interest rates to curb inflation. This was deemed important when there was concern that Ms. Truss’s tax cuts would add to Britain’s inflationary pressures, pulling fiscal policy in the opposite direction of monetary policy, and force the central bank to raise rates sharply.
But analysts expect Mr. Sunak to take a more cautious approach to fiscal policy, and traders have lowered their expectations about how high interest rates need to rise.
“Renewed coordination between monetary and fiscal policy should ultimately help bring down inflationary pressures,” Paul Hollingsworth, an economist at BNP Paribas, wrote in a note. Analysts at the French bank expect interest rates to peak at 4.5 percent early next year, down from a recent forecast of 5 percent. The central bank has set rates at 2.25 percent.
But there is a caveat: The “synchronized” tightening of fiscal and monetary policy “risks a prolonged period of economic stagnation,” Mr. Hollingsworth added.