Chancellor 'must pump money into transport' given likely private finance exodus

The Chancellor Philip Hammond needs to announce a "Keynesian stimulus" in his forthcoming autumn statement given the high degree of uncertainty affecting private investment following the vote to leave the European Union, it was urged this weekend.

The economics editor of The Guardian blog Larry Elliott said it was clear that there were risks to the economy that the Bank of England cannot deal with as adequately with monetary policy as the Treasury. "The next question is what form that stimulus should take," he asks, rejecting tax cuts as "expensive" and not guaranteed to work, before alighting on the alternative of increasing spending.

"Hammond would not be competing against the private sector for the funds available for investment... the private sector has a propensity not to invest. What's more, the economy is suffering from obvious supply-side deficiencies that would be eased by higher investment: passenger numbers on the trains have doubled in the past 15 years while spending on railway infrastructure has remained flat as a share of GDP. Public investment provides assets for the future and generates a stream of income that ensures that investment pays for itself."

The deficit, currently 4% of GDP, will rise in the short-term but come down over time." He acknowledges the downsides. "Despite all the talk about shovel-ready projects, it would take time for extra spending on infrastructure to show up in the growth figures." And, ironically given Brexit prompted the talk of stimulus, "construction sector has a massive problem with skill shortages and the only realistic way to find the workers to build homes and lay the new tracks would be to import them from overseas".