This all suggests that the economy will be in need of substantial support in 2020. The good news is that this is likely to be forthcoming. The government has announced a whole host of prospective fiscal measures, such as tax cuts and spending on areas from the NHS to education and the police, with the Chancellor Sajid Javid due to announce a Spending Review in September.
Typically, a Spending Review would distribute cash among government departments over a three-year period after the overarching budget framework has been set. However, this one is likely to be different and is more likely to be a ‘mini Budget’ where Prime Minister Boris Johnson’s pre-election spending pledges will be incorporated into department allocations. Until such time as the full budget is presented, and this is unlikely to be until November/December, we can’t be sure how much this fiscal loosening will equate to, although based on the willingness of Johnson and Javid to use up the buffer against the Fiscal Mandate, it could be around £20bn.
As an aside, the Fiscal Mandate is to achieve a structural deficit of less than 2% by 2020-2021, which was deemed to be met by 1.2% of GDP at the time of the Office for Budget Responsibility’s Spring Statement i.e. the structural deficit is expected to be 0.8% rather than the 2% limit.
It is also possible that Javid will ditch this rule of his predecessor Philip Hammond and replace it with the looser commitment of merely reducing debt-to-GDP each year in order to create room for more public borrowing. Ultimately, a fiscal boost equating to 1% of GDP is not an unreasonable expectation of the Budget to both support the economy and consumer in the event of a no-deal Brexit, as well as attract voters in the event of a post-Brexit general election.