In his Autumn Statement on 17th November the Chancellor, Jeremy Hunt, faces a deep dilemma. If he wants to reassure the markets, he will have to announce early action in the form of a big fiscal tightening. That could deepen and/or lengthen the recession and ultimately create an even bigger fiscal hole. If he tries to minimise the economic pain, he risks unsettling the markets and prompting another surge in gilt yields, which would also worsen the public finances. We suspect he will probably unveil fiscal tightening measures roughly the size of the £54bn (1.9% of GDP) rumoured in the media, but that he’ll tilt the balance towards tax hikes rather than spending cuts and have most policies starting later rather than sooner.
We’ll be discussing the implications for the economy and the financial markets of the Autumn Statement in a 20-minute online briefing at 4pm GMT on 17th November. (Register here.)
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