Damning Brexit verdict from investors following Autumn Budget

Investors have delivered a damning verdict on Brexit challenges following Chancellor Philip Hammond’s Autumn Budget, with his measures being described as throwing pebbles at Goliath.

Hammond, who backed Remain in the Brexit referendum, introduced his budget speech by stating those who underestimate Britain “do so at their peril”.

But he also revealed the OBR had downgraded the UK’s growth forecasts and confirmed the government would be adding an additional £3bn to the £750m it has already spent on preparing for the UK’s exit from the EU.

Hammond said he stood ready to allocate further sums “if and when needed”.

The growth assumptions from the OBR are in total 2.2 percentage points lower than the previous estimates.

Nevertheless, Hammond told the House of Commons he had a vision for a global Britain that was tolerant, outward looking, and a force for good in the world.

“No one should doubt our resolve,” Hammond exclaimed.

The fund management industry was unconvinced by Hammond’s hopeful narrative.

The Autumn Budget is a sideshow to Brexit, according to James Hambro portfolio manager James Horniman, who says Hammond was like a “boy scout rubbing sticks together in the rain”.

It was not just his shrinking budget headroom that was hampering Hammond’s scope for manoeuvre, but his party’s frail majority and internal factions,” Horniman says.

Aberdeen Standard Investments chief economist Lucy O’Carroll says the challenges facing the UK far outweigh the flurry of budget policies on “everything from maths to artificial intelligence and transport links”.

“Hammond is like David throwing pebbles at the Goliath of the productivity and growth challenges that the UK faces after Brexit,” O’Carroll says.

She describes his dwindling £14bn “war chest” as tiny compared to the hundreds of billions that come from tax revenue and go into public spending.

Premier Asset Management CIO Neil Birrell says the forecast reduction in debt is positive, but investments in the economy don’t provide a quick fix, especially in case of tech and education. He says growth and productivity downgrades are significant and “symptomatic of the fragility of the economy”.

The UK economic outlook remains a concern,” says Birrell.

Investec Wealth & Investment bond strategist Shilen Shah likewise agreed that Brexit overshadows anything announced in the budget arguing the shape of any trade agreement on services, which make up 80 per cent of the UK economy, is the key risk.

The UK will lag Europe and the US until there is more certainty over Brexit, says Quilter Cheviot head of fixed interest research Richard Carter. “There was precious little in the budget for investors and markets have mostly responded with a collective shrug.”

Carter says some of the OBR forecasts were gloomier than market consensus. “This comes at a time when the rest of the global economy is enjoying strong and synchronised growth.”

Brexit and rifts in the Conservative Party mean this budget was more political than economic, argues Hermes group chief economist Neil Williams.

Hammond’s challenge was fourfold, according to RLAM economist Ian Kernohan, requiring him to address Brexit preparations, the Government’s political fortunes and his own position within the Conservatives, while winning over demographics such as younger voters.

Liontrust head of multi-asset John Husselbee describes it as a “fairly thin Budget” that characterises a government without a strong mandate.

The fact the UK is among the few decelerating economies perhaps indicates headwinds caused by the Brexit-shaped elephant in the room and, like everyone, I am keen for that situation to be resolved as soon as possible,” Husselbee says.