Thursday 14 / November / 2024
London: Philip Hammond took over as Britain's new finance minister on Wednesday, putting him in charge of the world's fifth-largest economy as it risks sliding into recession after voters decided to leave the European Union last month.
Hammond, 60, was foreign secretary until he was appointed by Britain's new Prime Minister Theresa May to replace George Osborne who served as Chancellor of the Exchequer for more than six years.
One of Hammond's first tasks will be to decide whether he can afford to cut taxes or spend more to steer Britain's economy through the aftermath of the Brexit vote.
May has said she does not agree with Osborne's centrepiece plan to turn Britain's budget deficit into a surplus by 2020, a target which had looked tough to hit even before the shock referendum outcome.
"There are incredibly difficult decisions in terms of the public finances," said Paul Johnson, director of the Institute for Fiscal Studies, before Hammond's appointment.
Osborne more than halved the budget deficit of over 10 percent of gross domestic product he inherited in 2010. But economists say the remaining shortfall will be harder to tackle without cutting deeply into public services.
Johnson said May appeared willing to loosen the purse-strings in the short run. In a statement delivered in Downing Street after taking office on Wednesday, May said she would focus any tax cuts on the lower paid.
Before entering politics, Hammond had a business career in small and medium-sized companies in manufacturing, consultancy, property and construction, and oil and gas, both in the UK and abroad.
His tenure as Foreign Secretary since 2014 was dominated by the Ukraine crisis, Syria's civil war and negotiations that led last year to a six-power agreement with Iran to scale back its nuclear programme.
He previously served as defence and transport secretary and gathered a reputation as a safe pair of hands. He once joked that broadcasters ironically dubbed him "Box Office Phil" because he so rarely made headlines.
By contrast Osborne was prime minister David Cameron's closest ally and chief strategist until Cameron stepped down earlier on Wednesday.
SLOWING GROWTH
Britain's economy grew by 2.2 percent last year - roughly its long-run average - and the budget deficit fell to 4.0 percent of GDP, its lowest since the financial crisis though still higher than other big advanced economies.
But Britain's relatively strong recovery looks set to deteriorate rapidly. Bank of England Governor Mark Carney has warned of a material shock to the economy from the Brexit vote, and the central bank is expected to cut interest rates for the first time since 2009 on Thursday.
Ratings agency Moody's assigned a negative outlook to its grading of British government debt the day after the referendum, and analyst Kathrin Muehlbronner said there was a lack of clarity on the government's long-run budget plans.
"The current rating ... had baked in an expectation that the deficit would come down, and the debt would start to come down. If there is a new fiscal plan that changes that, that would certainly be a credit negative," she said.
Hammond will also need to reassure foreign banks that it is in their interests to stay in London despite the country's uncertain relationship with the rest of the EU.
Earlier on Wednesday, before his appointment, Hammond told the British Bankers' Association he would champion their access to the EU's single market.
Johnson from the IFS said the finance ministry was likely to play a key role in Britain's attempts to retain access to the EU's single market in the years of negotiations over its new relationship with the bloc that probably lie ahead. That could be at the cost of making concessions on migration which are opposed by some anti-EU campaigners.
Hammond, like May, quietly supported Britain staying in the EU during the referendum campaign.
"The biggest question over the next three to four years by far is Britain's relationship with the single market. In a sense, that is almost a bigger economic question than whether Britain is in the EU or not," Johnson said.
