Rishi Sunak replaces Sajid Javid as Chancellor - Capital Economics
UK Economics

Rishi Sunak replaces Sajid Javid as Chancellor

UK Economics Update
Written by Paul Dales

This Update was originally sent to clients as a Rapid Response immediately after the announcement that Sajid Javid was being replaced as Chancellor by Rishi Sunak at 12pm on 13th February 2020.

The unexpected resignation of Sajid Javid as Chancellor and the promotion of Rishi Sunak to the role could mean that fiscal policy will provide an even bigger boost to GDP growth over the next few years than we already expected. This could increase the upside to our forecasts for GDP growth, interest rates, gilt yields and the pound, which are all already above consensus.

  • This Update was originally sent to clients as a Rapid Response immediately after the announcement that Sajid Javid was being replaced as Chancellor by Rishi Sunak at 12pm on 13th February 2020.
  • The unexpected resignation of Sajid Javid as Chancellor and the promotion of Rishi Sunak to the role could mean that fiscal policy will provide an even bigger boost to GDP growth over the next few years than we already expected. This could increase the upside to our forecasts for GDP growth, interest rates, gilt yields and the pound, which are all already above consensus.
  • The resignation of Javid was an unexpected move in today’s Cabinet reshuffle and it appears that it was triggered by Downing Street threatening to sack his advisers at the Treasury. It’s the culmination of a number of clashes that originate from Javid’s apparent reluctance to significantly increase public borrowing by cutting taxes and/or increasing spending/investment. In other words, the move seems designed to allow the government to push through even bigger increases in public investment and perhaps resuscitate tax cuts that previously looked dead in the water.
  • Indeed, Sunak’s previous votes in Parliament suggest his views are perhaps more aligned with those of the Prime Minister and his Chief Special Adviser Dominic Cummings than Javid’s. His voting history shows he’s an ardent Brexiteer, supports reductions in corporation tax, cuts to capital gains tax and he’s gone on the record as favouring infrastructure investment. So this is either going to be a meeting of minds or Sunak will be the Prime Minister’s yes man living in Number 11.
  • We already thought that the Budget on 11th March would involve an extra loosening in fiscal policy worth 0.5% of GDP, which coming on top of the extra government spending announced in September 2019 would mean a fiscal boost of 1.0% is in the pipeline. It’s now possible that the Budget will provide a bigger bang.

Paul Dales, Chief UK Economist, +44 20 7808 4992, paul.dales@capitaleconomics.com