Fiscal stimulus likely after UK finance minister quits

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LONDON: Finance minister Sajid Javid’s resignation on Thursday, just a month before he was to deliver Britain’s annual budget statement, took the business community by surprise.

But according to economists, his departure will give Prime Minister Boris Johnson more freedom to launch more aggressive efforts to support the British economy at a turbulent time.

Analysts were expecting the government reshuffle mainly to impact the government’s lower ranks and no one predicted the Chancellor of the Exchequer, as he is formally known, to go.

His unexpected exit less than two weeks after Britain left the European Union, and with the budget due on March 11, triggered shockwaves.

“It’s unbelievable to see that a chancellor has left so close to the first budget of the new government,” said a surprised Nimesh Shah of the Blick Rothenberg consultancy.

Javid was only in the post for less than seven months, making him the shortest serving finance minister in half a century.

Downing Street swiftly promoted Rishi Sunak from chief secretary to the Treasury — effectively number two to Javid — to the top job.

A 39-year-old former high-flying business investor who only entered politics five years ago, Sunak now has to steer the key department at a time when the British economy is slowing.

Carolyn Fairbairn, of the Confederation of British Industry (CBI) representing Britain’s bosses, welcomed Sunak’s appointment.

“This is a vital time for (the) economy — by working together business and government can deliver a decade of renewal across the UK,” she said on Twitter.

Power grab

Javid, a Conservative big hitter who also challenged Johnson to be party leader when Theresa May stepped down, quit when Johnson said he would only be reappointed if he sacked his close aides.

Tom McPhail, of investment firm Hargreaves Lansdown, said the move “was definitely not in the script”.

“Given the new chancellor’s relative lack of a power base and rapid ascent of the political ladder, the forthcoming budget will probably be more of the prime minister’s making than would otherwise have been the case,” he added.

“This increases the likelihood of a bold Budget with populist spending announcements.”

Johnson won comfortably at the last election in December vowing to boost public spending in key areas such as health, education and policing.

Javid, an ex-banker and self-proclaimed devotee of free market champion and ex-premier Margaret Thatcher, argued the government could borrow at current low interest rates to pay for investment.

But he was also seen as more fiscally conservative than his boss, and not willing to sanction various tax cuts touted by Johnson and his allies as Britain’s economy slows amid continued Brexit uncertainty.

“Javid was the most prominent fiscal hawk in Boris Johnson’s cabinet,” economists at Citi Bank said.

“Trump-style stimulus could return now,” they added, referring to the US president’s efforts to boost the US economy largely through tax cuts.

More support for the British economy would be welcomed by many in the financial sector. The pound rebounded after Sunak’s appointment.

“This is a blatant power grab by Boris and Cummings over the Treasury,” said Neil Wilson, chief market analyst at Markets.com, referring to the prime minister’s closest and most powerful aide, Dominic Cummings.

“Spending will be dictated by political needs and necessity, rather than the Treasury acting as a brake on political giveaways.”

Zero growth

Britain’s economy saw zero growth in the final quarter of last year as manufacturing shrank heading into the general election that unlocked Brexit on January 31.

It posted overall growth rates of 1.4 percent in 2019, compared to 1.3 percent a year earlier.

Some surveys suggest economic activity is picking up on the back of the election win, promised increased spending, and with the first phase of Brexit over.

But uncertainty remains about Britain’s future economic relationship with the EU, its main trading partner.

The Bank of England last month downgraded its growth forecast for 2020 to 0.8 percent.

The government meanwhile warned businesses this week to prepare for stricter controls on goods coming from the EU, saying it was an “inevitable” result of Brexit.

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