Philip Hammond said UK will await more data on the state of post-Brexit economy before making any decisions. Photograph: Stefan Rousseau/PA
Philip Hammond has ruled out a “splurge” in public spending to support the economy in next month’s autumn statement and insisted that any help to boost demand would be on only small projects that deliver productivity improvements.
Speaking in Washington, the chancellor said he would wait for more data on the state of the post-Brexit economy before making any decisions but made it clear that the previously announced “re-set” to fiscal policy would be on a modest scale.
Hammond said it was sensible to abandon the plan announced by his predecessor, George Osborne, to run a budget surplus by the end of the current parliament in 2019-20 and that there was now an opportunity to support the economy.
“Now is a good time to invest in genuinely productivity-enhancing infrastructure, and to take advantage of low borrowing costs and our ability to borrow.
“But this is not about a fiscal splurge. It is about supporting the economy in a measured and balanced way.”
The chancellor left open the option of doing nothing in the autumn statement, saying that he would make up his mind as more data came in over the next month.
But he dropped the broadest of hints that he is currently planning to supplement the stimulus provided by the Bank of England with “careful, considered and targeted” measures.
At the end of a week that has seen sterling fall to a fresh 31-year-low on a daily basis, Hammond was careful to do nothing to add to the downward pressure on the pound.
He dampened speculation that the government would announce some high-profile public spending initiatives in the autumn statement, pointing instead to smaller-scale projects – such as road and rail improvements – with sizeable pay offs.
Hammond said it was not sensible to stick to Osborne’s plan given the expectation that there would be turbulence for the two-year period of negotiations between Britain and the other 27 EU states that will begin by next March.
But he said the state of Britain’s public finances meant there was still the need for a timetable to get borrowing down.
“We have very high debt to GDP and a significant budget deficit. It is not credible to leave fiscal policy unanchored. I want to give the markets a clear set of benchmarks and will set out my plan in the autumn statement.”
The chancellor said it was quite often the “modest” public infrastructure projects that had the best returns, because they were able to be started quickly. “They give a short-term boost to the economy but also provide longer term benefits.”
He added: “It will not be spending in the way previous chancellors have used the word investment. It will be investment in the way a businessman would understand the word investment.”
Hammond said he wanted a framework that allowed him to respond to economic conditions, stressing that if the official figures for growth in the third quarter – due out in late October – was much stronger than expected he might do nothing.
Financial markets, however, are braced for some action from the Treasury in the autumn statement given the comments made by both the chancellor and the prime minister, Theresa May, since the Brexit vote on 23 June.
Hammond said the UK was fundamentally strong. “The data for the first half of 2016 has been revised up to show that the economy going into the referendum was stronger than we thought.
“That doesn’t alter the fact that I expect there to be a period of turbulence as the economy responds to the uncertainty that the vote has created, and adjusts to the changed arrangement with the European Union.
“Although the economy has been resilient, we have to expect and plan for ups and downs that will be seen over the next 24 months as we negotiate our exit from the EU.”
Hammond said he was not surprised at the tough noises emerging from other EU countries, saying that was simply part of the negotiating process. “We will say what we want and say it is non-negotiable. They will say what they want and insist it is non-negotiable. Then we will negotiate,” he said.