Whilst we have the same Chancellor, or the Chancellor remains committed to austerity and limiting the increase in debt, there can be few surprises in this year’s budget or the next few years. The result will be protracted slow growth. The cut in corporation taxes for small companies is welcome but modest and gradual. An alternative route is to focus on reducing debt relative to GDP by seeking more GDP growth.
Utilising low long-term borrowing rates on government debt to fund more infrastructure and more aggressive supply side measures rather than relying entirely on the Bank of England and Funding for Lending and QE would produce faster economic growth.
The budget stance suggests that the Chancellor sees restrained growth and tight fiscal deficit the best way of containing a further downgrade although this combination did not avoid the most recent downgrade.
Both policy options run the risk of not tackling the debt-GDP ratio but a more aggressive policy on growth would at least produce stronger growth to offset any fiscal disappointments. The austerity root seems to also produce fiscal disappointments but alongside weak growth too.