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U.K. Chancellor of the Exchequer Sajid Javid says he plans to change the government's fiscal rules to allow spending on an “infrastructure revolution” and that the time is right to take advantage of low interest rates.
Speaking on Sky News Monday, Javid indicated he's ready to relax the existing framework, which limits structural borrowing to 2% of gross domestic product. The comments came before the chancellor's speech at the Conservative Party Conference, where he is set to announce a multi-billion pound funding program to fix holes in the road, boost fiber broadband and modernize the country's bus services.
The plans are a marked shift from the past decade in which the U.K. has pursued austerity to bring down the budget deficit. It presents a challenge to the opposition Labour Party, which is also promising vast spending and investment increases if it wins power.
“We need a new set of fiscal rules that will allow this investment that I'm talking about today in infrastructure, a real step-change, an infrastructure revolution,” Javid said. “It is prudent and sensible for the government to take advantage of those low rates as long as we invest sensibly.”
The U.K.'s market borrowing costs are close to record lows, with the nation's 30-year gilt yielding less than 1%. Javid's indication that he wants to boost spending stands in contrast to the stance taken by Germany, where officials have held firm on the prospect of borrowing more.
In a separate interview Monday, Javid pledged a major fiscal response if Britain leaves the European Union without a deal, and indicated he expects the Bank of England would also assess the need for monetary support -- though he noted that would be a decision for policy makers at the central bank.
“If it was no deal, there would be a significant economic policy response,” Javid said on BBC Radio 4. “The independent Bank of England will almost certainly think about a monetary policy response, and that's for them. But I will be thinking about a fiscal and other economic policy response.”
Talk of a BOE interest-rate cut has increased since late last week, when policy maker Michael Saunders said Brexit uncertainties are likely to keep depressing growth. He said the central bank may have to cut rates even if the U.K. avoids a no-deal outcome.
Asked about the cost to the economy, Javid said there would be challenges, but added: “I don't think anyone really knows the full proper answer to that question.” That's because the analysis hasn't taken into account the potential response of the Treasury and the BOE, he said.
“No one really knows, because they couldn't know, what the economic policy response would be,” Javid said. “I have never pretended that if you leave without a deal, that it won't be challenging.”
To contact the reporters on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net;David Goodman in London at dgoodman28@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Brian Swint, Andrew Atkinson
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