He added that the key challenge to achieving this ambition will be if economic growth turns out to be lower than forecast.
“In my view, substantial risks to the UK’s economy remain, bringing into question an implicit suggestion that animal spirits will suddenly rise in the years ahead. As it stands, the country continues to face the same uncertainties that triggered such a sharp decline in the value of sterling in the aftermath of the EU referendum vote.”
Barings’ director of asset allocation research at Barings, Christopher Mahon, was even less impressed, saying that, in his view, the plan on infrastructure is upside down.
“The treasury has already committed eye watering sums of money to programmes such as HS2, Heathrow & Hinkley that won’t be completed for another 20 years…Meanwhile only token amounts of money are being spent on practical projects that are needed today such as easing rail and road bottlenecks.”
The brighter side
Paras Anand, head of European equities at Fidelity International, was a little more upbeat, pointing out that investors focusing too much on the lack of rabbits being pulled of Treasury’s hat missed the fact that Treasury had increased the size of the hat considerably. And, this he said, could have a positive effect in the long term.
“The last few years have seen the corporate sector favouring a conservative approach to investment, retaining earnings within the business or distributing to shareholders via dividends or share repurchases. While it is true that corporate activity has been robust, it is hard to argue that these have been driven by elevated animal spirits – in fact, it is the lack of certainty in the demand outlook that has driven companies to drive returns to shareholders through scale and efficiency,” he said.
Adding: “The truly positive case for the UK economy is one where this change in economic strategy does, in time, lead to a shift in the perception of risk that has constrained the corporate sector over recent years and we see the direction of private sector investment following that of the public sector.”
While such a case is indeed, positive for the UK economy, there is an incredible amount of work needed and a lot of uncertain terrain to navigate to get there. And, as Mahon points out, there remain question marks around the heft of the measures announced.
