One developed market may have had the push - and opportunity - it needed to begin loosening fiscal policy, said sources.
“I think the U.K. will be the first country that actually does it — because of Brexit,” said Xavier van Hove, a fund manager at GAM in London. “There was a silver lining — despite the uncertainty, the government has been given at last free range to spend.”
All eyes will be on Philip Hammond, chancellor of the exchequer, who will deliver his first Autumn Statement, an annual update on the government's plans for the economy, on Nov. 23.
“The U.K. has a good excuse — Brexit is a good excuse to move away from (former Chancellor George Osborne's) austerity process, and toward fiscal” spending, said Paul Brain, head of fixed income at Newton Investment Management in London. “It is about infrastructure spending, perhaps setting up investment plans, maybe tax breaks to encourage private and public investment for infrastructure spending.”
This spending could extend to improving Internet connections, and a reduction in company taxes could also be an option. “(Mr.) Osborne was talking about it, but (Mr.) Hammond could start to put in new policies. We could see company tax rates dropping over the next two to three years to encourage investments, and the building of "stuff' in the real economy,” he said.
Mr. Brain also highlighted potential for infrastructure spending in the U.S., across the country's transportation systems and infrastructure.
However, there are countries where fiscal policy may not have as successful an impact. “The Japanese economy, in part, we think will struggle with an increase on the fiscal side. They have tried before with infrastructure spending, building bridges to nowhere.”
He highlighted that Japan has such a large budget deficit already, that the impact will likely be less than elsewhere around the world.