You are here: Home - News -

Budget 2018: Fiscal loosening boosts risk of two rate hikes next year if ‘no-deal’ avoided

  • 30/10/2018
  • 0
Fiscal loosening may create space for two Monetary Policy Commitee (MPC) rate hikes next year, research has found.


Fiscal policy will boost Gross Domestic Product (GDP) growth in 2019 and plans for a renewed tightening thereafter likely will not be maintained, according to the UK economic monitor Pantheon Macroeconomics.

The Office for Budget Responsibility (OBR) now expects year-on-year GDP growth to average 1.5% between 2019 and 2022, up slightly from 1.4% in the Spring Statement.

Delivering the Budget, chancellor Philip Hammond announced that the personal allowance and higher rate thresholds for income tax will rise to £12.5K and £50K, respectively, in April 2019, from £11.9K and £46.4K currently.

On the new plans, fiscal policy now will boost GDP growth modestly next year, adjusted borrowing will be 0.3% of GDP higher in 2019/20 than in 2020/21, the largest increase since 2009, before then falling by 0.3% of GDP in 2020/21.

The report revealed that total government expenditure is set to stabilise at 38% of GDP over the next five years, having fallen every year since its 2010 peak of 45%.

Samuel Tombs, chief UK economist at pantheon Macroeconomics, said that fiscal loosening in the near-term is coming at the cost of getting the debt-to-GDP ratio back down to levels which would enable a future government to drag the economy decisively out of the next downturn.

He added: “Even on yesterday’s plans – which won’t be followed – the ratio will be an uncomfortably high 74% in 2022/23, down from 85% this year.

“Finally, the Chancellor’s largesse will embolden the MPC to step up the pace of interest rate hikes next year. We continue to expect the MPC to raise Bank Rate twice next year – in May and November – provided a no-deal Brexit is avoided.”

There are 0 Comment(s)

Comments are closed.

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.


Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.


Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.


Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.

Read previous post:
Budget 2018: Help to Buy allowed six out of 10 to buy bigger properties

The Help to Buy equity loan scheme allowed six out of 10 users to buy a bigger property than they...