Brexit slams brakes on Bri­tish growth UK cuts 2017 growth fore­cast to 1.4% from 2.2%

Kuwait Times - - BUSINESS -

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.

Pound flat

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

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