UK Fiscal Policy: We are all keynesians now – RBS

Ross Walker, UK Economics Desk Strategist at RBS, suggests that against a backdrop of trend-like GDP growth and with scope for significant monetary policy stimulus, a moderate fiscal tightening brought the optimal policy mix for the UK.

Key Quotes

“In the spirit of Keynes, when the facts change. . . the case for actively tightening fiscal policy into a significant slowdown in private sector demand is far less compelling. We are all Keynesians now, up to a point. The main barrier to fiscal easing is not financial but rather an exasperating British inability to get shovels into the ground (a third runway at the country’s main airport, a high-speed rail link between its two largest cities, energy generation and supply capacity. . . the list goes on).

Still, we expect the Autumn Statement, expected in November, to signal a dilution of the planned fiscal tightening in 2017-18 and 2018-19 FY. Further BoE QE will mop up extra gilt supply.”