Sunak postpones fiscal statement until 17 November

The newly appointed Prime Minister Rishi Sunak has delayed the Halloween fiscal statement by 17 days as the government and Treasury strive to get the UK’s finances back on a sustainable footing.

The government’s plans to grow the economy and reduce debt will now be released on 17 November, alongside independent forecasts from the Office for Budget Responsibility (OBR), as a full Autumn Statement.

Sunak and his Chancellor Jeremy Hunt have said it is important that the government takes the time to get its fiscal policy plans right, rather than rushing them through.

This is the second time the date has been changed. Former Chancellor Kwasi Kwarteng brought the statement forward from 23 November to 31 October in a bid to soothe markets following the calamitous mini-budget he co-authored with previous PM Liz Truss.

Sunak’s delay has not triggered panic in the markets, as some had expected. The new PM and Chancellor have effectively restored stability to UK markets by scrapping almost all of the unfunded tax cuts in Truss and Kwarteng’s mini-budget. Investors seem happy to give the new duo space to create a well-thought-out plan to steer the UK economy through treacherous waters.

One concern, however, is that the fiscal policy statement and OBR forecasts will not be out before the Bank of England’s (BoE) next interest rate decision on Thursday 4 November. Hunt said he had discussed the delay with BoE Governor Andrew Bailey, who ‘understood’ the reasons behind the Chancellor’s decision.

But the British central bank must now decide on monetary policy without knowing the direction of government fiscal policy. Instead, members of the bank’s Monetary Policy Committee (MPC) must speculate based on Sunak’s recent comments.

The PM has said that he will ‘take difficult decisions to restore economic stability’, suggesting spending restraints and higher taxes. Such policies would have a deflationary effect, taking pressure off the BoE to keep aggressively hiking interest rates.

However, the PM also pledged to ‘protect the most vulnerable’ and enact ‘fair and compassionate’ policies. This hints at further support for struggling families, and therefore more government spending, which would likely require tighter monetary policy to offset the Treasury’s loose approach.

Left in the dark, the BoE may err on the side of caution. Although inflation remains at a 40-year high, Truss’s energy price guarantee should begin to feed through soon, pushing inflation lower. Meanwhile, the UK may already be in a recession, and if the bank hikes too hard then it could worsen the economic outlook.