Former foreign secretary Phillip Hammond has been named Chancellor of the Exchequer, with George Osborne resigning from the Government.
Hammond, aged 60, was a prominent campaigner for the UK to remain in the EU. Prior to being foreign secretary he held the defence and transport briefs, as well as being shadow chief secretary to the Treasury and shadow secretary of state for work and pensions.
He has always voted against increases on income tax above £150,000 and for increases in VAT. He has regularly voted against raising benefits at least in line with inflation.
Osborne, whose only role in government has been as Chancellor of the Exchequer since 2010, is believed to be returning to the back benches.
Old Mutual Global Investors CEO Richard Buxton says: “Philip Hammond walks into one of the most unusual economic environments I have known in my 30-year investment career. The monetary policy experiment we’ve witnessed since the financial crisis has probably reached its limits, while the pro-‘Brexit’ vote means we’re facing an economy that may grind to a halt over the next few months, not through a traditional credit boom being reined in by the central bank, but simply in response to the referendum result. The question the new chancellor will have to ask himself is: is further monetary stimulus really enough, or is it time for the baton to be passed on to fiscal policy?
“The Treasury can take a number of measures to help boost the economy, such as reducing stamp duty or cutting tax on petrol. However, I believe that we might eventually see more extreme fiscal stimulus: debt issuance to help back private sector or government schemes for infrastructure projects. Such fiscal stimulus is being planned in Japan in recognition that monetary stimulus alone is insufficient. Ideally, any such move amongst the major economies would be co-ordinated, but if Japan has led the way, it is perfectly possible to see the UK and the US following suit.
“The major drawback of loosening fiscal policy independently of other major economies is that a rising budget deficit could see foreign investors requiring a cheaper currency to attract their investment – potentially yet further weakness in sterling.
“The Bank of England has acknowledged the limits to further monetary stimulus, but equally cautioned that the Government must remain fiscally prudent and responsible. Against the ‘protest vote’ referendum result, however, the chancellor has to find the right balance between stimulating the economy, managing debt and pleasing the crowd by reducing income inequality. That is an enormous challenge. History suggests that in modern democracies the temptation to inflate your way out of trouble through stimulus and debt devaluation ultimately prove irresistible. The next few months are undoubtedly going to be interesting and we will be looking to take advantage of the opportunities as they present themselves.”
