RBS chair urges May to spend on infrastructure

RBS chairman Howard Davies

The chairman of Royal Bank of Scotland has urged UK Prime Minister Theresa May to increase spending on infrastructure to help prevent a post-Brexit vote slump.

Howard Davies said in an interview on Bloomberg Television on Monday that the UK government needed to “complement the activity of the Bank of England by some expansionist policy on infrastructure spending.”

UK central bank governor Mark Carney unveiled a stimulus package earlier this month that included the first interest-rate cut in seven years.

The UK’s benchmark interest rate is now a mere 0.25% — leaving little room for further action.

Davies said: “Supposing we do face a bit of a recession, what will the central bank do?

“You’re not sure that if you do run into trouble that the cavalry can ride over the hill and rescue you because they don’t seem to have any ammunition left.”

Davies told Bloomberg it would make “a lot of sense” for UK finance minister Philip Hammond to unveil a package of infrastructure investment in his Autumn Statement later this year.

In a note to clients, HSBC chief UK economist Simon Wells also made the case for big public spending measures in the Autumn Statement to boost growth.

Wells and economist Liz Martins wrote: “The Bank of England has done what it can, all eyes are now on the government.”

In the note called “When uncertainty reigns, look to Keynes” the HSBC economists said: “In the current environment, the case for public investment is compelling.

“Interest rates can’t go any lower, uncertainty is extreme and borrowing is cheap.

“Moreover there is evidence that fiscal multipliers are larger when the economy is in a slump.”

The economists argued that increasing public sector investment could be the most effective form of stimulus and that there was no shortage of infrastructure investment opportunities, notably in transport and housebuilding.