Cheers of delight reverberated around the House of Commons as self-proclaimed ‘Fiscal Phil’ announced the “era of austerity coming to an end”.

A scent of hope drifted by as purse strings loosened in light of “better than expected” public finances and forecasts for our economy.

The Office for Budgetary Responsibility’s (OBR) assessment laid down the picnic blanket for the Chancellor, who unpacked a basket of give-aways to businesses and households in what will prove a memorable, yet critical year for the UK’s future.

The Chancellor packaged this Budget as one “for hard working families” as he delivered a range of measures to support honest households striving forward.

Arguably, there was no sight of the proverbial “rabbit out of the hat”, although some may have sworn they caught a glimpse of white fluffy ears as he announced a boost in the personal tax allowance coming one year ahead of plan.

“Shoppers are at the very heart of our economy and it remains to be seen whether this budget delivers the necessary support to keep the circulation flowing.”

Richard Lim, Retail Economics

From next April, the personal allowance will be £12,500 (from £11,850) and the High Rate Threshold will rise to £50,000 (from £46,350) meaning tax cuts for 32 million people – equivalent to an additional £130 per year for a basic rate tax payer.

People will be able to toast this windfall with a well-earned pint costing the same, as duties on beer, cider and spirits were frozen. The ongoing freeze on fuel duties will also keep a little extra in the pockets for consumers.

For the lowest paid, a 4.9% increase in the National Living Wage to £8.21 per hour provides additional help, equating to a further £690 annual pay increase for a full-time worker.

Keeping spending flowing?

However, there’s one constant our Chancellor routinely banks on – consumers being the life-blood of our economy.

After all, almost two thirds of the economy is made up of consumer spending and about a third passes through the retail sector. Shoppers are at the very heart of our economy and it remains to be seen whether this budget delivers the necessary support to keep the circulation flowing.

Put simply, consumer spending is determined by two factors. One – how much households have left to spend at the end of the month after paying the essentials. And two – their willingness to spend it.

Measures to support households, and thus the economy, are predicated on consumer confidence, which is beginning to wilt.

Oddly, although the mood of the nation is fixated on ‘the B-word’, Brexit was hardly mentioned by the Chancellor.

“While some Budget measures might provide tangible support for the least affluent in society, the overall backdrop for consumer spending is expected to soften.”

Richard Lim, Retail Economics

Yet our research at Retail Economics shows that uncertainty over Brexit surfaced as the ‘biggest current concern’ for 39% of households in October, followed by lack of savings (18%) and debt worries (12%).

Most measures of confidence, whether on the economy, personal finances or intentions to spend, have all fallen on previous levels, sparking the question of whether households are about to batten down the hatches.

While some Budget measures might provide tangible support for the least affluent in society, the overall backdrop for consumer spending is expected to soften, as improvements in spending power are overshadowed by weakening propensity to spend and increased levels of saving.

Nevertheless, so much will rest on the outcome of government negotiations with the EU and the lead-up to March 2019.

Although I still believe a deal is more likely than not, Retail Economics estimates the chances of a no-deal is about 40%.

A disorderly exit from the EU will inevitably lead to an emergency March Budget, where ‘Fiscal Phil’ might actually have to conjure up that rabbit to save the economy from a cliff edge.