Chancellor may 'reset' economic policy in Autumn Statement

The new Chancellor of the Exchequer has said he may use the Autumn Statement to "reset" Britain's economic policy.

At the start of a trip to China to strengthen post-Brexit business ties, Philip Hammond said he would review economic data over the coming months.

He added that the Treasury will act "if we deem it necessary to do so".

Labour's shadow chancellor, John McDonnell, dismissed Mr Hammond's plan as "just warm words from another Tory chancellor".

And he added: "As at present the failed austerity policies of George Osborne are still going ahead and the government is still sticking to the failed fiscal framework.

"This means that Britain is on hold until Philip Hammond makes up his mind. The Tories clearly had no plan for Brexit and are making it up as they go along."

Before becoming Prime Minister, Theresa May had said that the government would no longer seek to reach a surplus by 2020.

Mr Hammond said on Friday: "Over the medium term we will have the opportunity with our Autumn Statement, our regular late year fiscal event, to reset fiscal policy if we deem it necessary to do so in the light of the data that will emerge over the coming months."

Following Mr Hammond's statement, figures from IHS Markit's Purchasing Managers' Index revealed a "dramatic deterioration" in economic activity in the services and manufacturing sectors in July, which fell to the lowest level since April 2009.

Analysis: Kamal Ahmed, BBC economics editor

Well, that was a surprise.

Among the warm words on Sino- British relations (the UK still wants to be a major investment partner with China) the new Chancellor of the Exchequer dropped a small grenade.

He said the government would be willing to "reset fiscal policy" if it was deemed necessary given the decision on Brexit.

Following on from Theresa May's announcement that the government's 2020 target to eliminate the deficit was no more, Mr Hammond looks like he is considering a radical approach should the economy need a kick start.

That opens up a host of possibilities.

More borrowing?

More infrastructure spending supported by the state as well as private money?

Yes, the government has said it wants to "live within its means".

And nothing has been decided.

"Reset" is only one word, after all, though a significant one.

But, as with Mrs May, Mr Hammond might be rather more headline grabbing on changes in economic direction than some expected.

Particularly if the economy looks sickly ahead of the Autumn Statement.

This week new data showed that public borrowing was lower than expected in June, but it is still expected to overshoot the government's £55.5bn full-year borrowing forecast by £14bn.

Paul Johnson, director of the Institute for Fiscal Studies, the independent think tank, said: "I think what Mr Hammond was saying was rather similar to what George Osborne was saying about the fact that the government needs to re-think its fiscal rules, it's not going to get to a budget surplus as it planned in 2020 because the economy will slow down.

"We don't know how much, it might be a recession, it might just be a slowdown. That will mean there will be less tax revenue coming in and Mr Hammond is going to have some really tough choices to make in the Autumn Statement. Increase spending? Cut taxes? Or just carry on as we were?"

Mr Hammond is attending his first meeting as chancellor with the G20 finance ministers which is taking place in Chengdu. He will also visit Beijing and Hong Kong.

He declared that Britain was "open for business" and was "one of the most attractive destinations in the world for international investment".

Before Britain voted to leave the EU, China's Finance Minister Lou Jiwei said the consequences were unclear, but that they would be felt for years to come.

Mr Lou said Brexit would "cast a shadow over the global economy" and that the "repercussions and fallout" would emerge over the next five to 10 years.