Mayflation, Hammflation or Trumpflation?

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham

“Recent Autumn Statements have stressed fiscal austerity and this one will place a new emphasis on fiscal stimulus.”


On Wednesday 23 November, a very different style of Autumn Statement will be delivered by the new Chancellor, Philip Hammond. Or perhaps, this will be a different style, but with some of the same content. The emphasis placed by the former Chancellor, George Osborne, on hard hats and Hi-Viz vests will continue with targeted spending on public sector infrastructure. The bad news is that this spending will target schemes that are ready for delivery and this does not mean that these are the most critical schemes; first to the post in infrastructure terms does not necessarily mean the expenditure will have the greatest impact or provide the best value for money. The speed is driven by the electoral cycle and the need for this Government to be seen to be doing something now.

Recent Autumn Statements have stressed fiscal austerity and this one will place a new emphasis on fiscal stimulus. It is worth placing this in the context of President Trump’s plans for the US economy – a reduction in taxes and an increase in expenditure including infrastructure and military. This will represent significant fiscal growth with consequences for inflation, interest rates but also economic growth. It would appear likely that the UK will align itself, in part, with a more modest UK version of a Trumpflation stimulus or will this be a period of Mayflation or Hammflation. This will be better for savers and worse for borrowers. At the same time, the European Union appears to be on track to continue with an austerity agenda.

A key question is: what sort of Autumn Statement for what sort of industrial policy? The debate over a new industrial policy will be reflected in this Statement and the next budget. The focus must be on enhancing connectivity to remove blockages that are constraining growth (airports, rail, road, ports and digital), investment in skills and investment in research and development. A critical issue is the UK tax system that would benefit from a period of real or actual simplification.

It is always dangerous to engage in wishful thinking, but what should we wish for from this Statement? The answer is appropriate expenditure that will enhance economic growth and lead to an increase in the tax take over the mid to longer term. This requires a focus on the wider framework conditions that support economic growth – infrastructure, skills, research and development, appropriate regulation and a suitable taxation system. Linked to this is a continued focus on rebalancing the national accounts with a focus on long-term deficit reduction combined with a renewed emphasis on social inclusion or prosperity for all.