Schroders: Budget must prioritise infrastructure spend

Zangana Azad Schroders

Schroders is calling for “badly needed” further investment in public infrastructure as it awaits chancellor Philip Hammond’s inaugural Budget next week.

“As we stated following the Autumn Statement last year, we would like to see the government take advantage of the close to zero interest rates to invest in badly needed public infrastructure, particularly in projects that help boost long-term productivity.

“There was a small nod in that direction last year, and public investment spending has increased, but more needs to be done.”

Last year was the first year that UK business investment contracted since the height of the financial crisis, and while government spending made a small positive contribution it was negated by the larger negative contribution by net trade.

Senior European economist and strategist Azad Zangana at the group points out that if household spending was excluded, the rest of the economy would have also contracted last year.

He says this highlights the imbalances in the economy and the downside risks, given the sharp rise in inflation.

Looking ahead to 8 March, the economist says the Office for Budget Responsibility growth forecast is 2.1 per cent for 2016, yet he believes the chancellor may have a bit more “wiggle room” than was forecast in the Autumn Statement 2016.

He says: “Looking at government borrowing in the fiscal year to January, the budget deficit stood at £49.3bn compared to £62.9bn during the same period in 2015/16.

“Assuming the same run rate of savings, the chancellor could find he has around £12bn to play with in his next update from the current fiscal year alone.”

Hammond faces “considerable pressure” to find more funding for the NHS and social care, alongside growing anger around the extent of the re-rating of business rates, particularly in London and the South East, he says.