Brexit slams brakes on British growth UK cuts 2017 growth forecast to 1.4% from 2.2%
Britain’s economic growth will slow sharply next year, Finance Minister Philip Hammond told parliament yesterday in the government’s first budget statement since the nation voted to exit the European Union. The nation’s shock June 23 vote to leave the European Union will “change the course of Britain’s history”, Chancellor of the Exchequer Hammond said in his Autumn Statement exactly five months after the referendum.
Brexit “makes more urgent than ever the need to tackle our economy’s long-term weaknesses”, he added. Gross domestic product was expected to grow by only 1.4 percent next year sharply down from the prior estimate of 2.2 percent given in March. “That is slower of course than we would wish, but still equivalent to the IMF’s forecast for Germany, and higher than the forecast for growth in many of our European neighbors including France and Italy,” Hammond told lawmakers.
He noted however that the UK economy was predicted to have expanded by 2.1 percent this year, up from the government’s previous estimate of 2.0 percent. In a keenlyawaited budget, he unveiled a package of UK-wide investment projects, including the building of homes and road improvements.
Hammond also raised the country’s minimum wage level and hiked tax thresholds to give workers more take-home pay.
While viewed as a government attempt to trim of years of austerity triggered by the 2008 global financial crisis, Hammond confirmed he had abandoned predecessor George Osborne’s aim of a budget surplus by 2019/20. “In view of the uncertainty facing the economy, and in the face of slower growth forecasts, we no longer seek to deliver a surplus in 2019-20,” Hammond said.
But the government remains “firmly committed to seeing the public finances return to balance as soon as practicable, while leaving enough flexibility to support the economy in the near term”, he added.
The British economy has remained resilient since the referendum, even as a cut in the Bank of England’s main interest rate to a record-low 0.25 percent has contributed to a slump in the pound.
Hammond said the projected growth slowdown was due to “lower investment and weaker consumer demand, driven ... by greater uncertainty and by higher inflation resulting from sterling depreciation”. Some experts have warned that a heavy blow could fall on the UK economy once divorce proceedings with the rest of Europe begin.
In an attempt to prepare Britain for leaving the EU, Hammond said the government planned to invest 1.0-1.2 percent of GDP on economic infrastructure from 2020, up from 0.8 percent now.
Sterling was little changed at $1.2406. The Office for Budget Responsibility, Britain’s independent budget forecasters, said gross domestic product would grow by 1.4 percent in 2017, down from an estimate of 2.2 percent made in March, before voters decided to leave the EU. Hammond, announcing the first detailed economic plans of May’s government, said the OBR believes uncertainty about Britain’s trading relationships with its EU neighbors - who buy nearly half the country’s exports - will cut growth by 2.4 percentage points over coming years.
Hammond said the OBR now saw economic growth in 2018 at 1.7 percent compared with March’s forecast of 2.1 percent. “We will maintain our commitment to fiscal discipline while recognizing the need for investment to drive productivity and fiscal headroom to support the economy through the transition.”
Prime Minister Theresa May has vowed to trigger Britain’s exit from the European Union by the end of March by activating Article 50 of the EU’s Lisbon treaty, which begins a twoyear countdown to leaving the bloc. As Hammond addressed the nation, a small group of pro-Brexit demonstrators were gathered outside parliament demanding Article 50 be triggered immediately.
Among his key tax-and-spend pledges, Hammond announced a £1.4-billion ($1.7-billion, 1.6-billion euros) investment to help build 40,000 “affordable” homes. Plans to ban certain costs incurred by renters of residential properties has already had an impact, with share prices of estate agents slumping in trading yesterday. The chancellor also announced a rise in the minimum wage to £7.50 an hour in April from £7.20. And he confirmed a plan to cut corporation tax to 17 percent by 2020 from the current 20 percent. Over the weekend, May announced fresh investment in research and development, hiking the government’s spending by £2 billion annually until 2020. Investments will be rolled out through a new fund that will prioritize technologies including robotics, industrial biotechnology and medical technology.
LONDON: A video grab from footage broadcast by the UK Parliament’s Parliamentary Recording Unit (PRU) shows British Chancellor of the Exchequer Philip Hammond as he delivers his Autumn Statement to the House of Commons in London yesterday. —AFP
LONDON: Philip Hammond leaves 11 Downing Street to deliver his Autumn Statement before Parliament yesterday. —AFP