UK sets aside £3bn fund to prepare for Brexit events

The UK prime minister Theresa May’s under-fire government acknowledged Britain’s economic outlook is deteriorating as it set aside an extra £3 billion (Dh14.57bn) to prepare for all possible Brexit outcomes.

Opening his Budget speech in parliament yesterday, the chancellor of the exchequer, or finance minister, Philip Hammond said the office for budget responsibility (OBR) now sees 2018 economic growth of 1.4 per cent compared with the 1.6 per cent predicted in March as a result of revised productivity data and headwinds caused by Britain’s vote to quit the European Union.

Growth is predicted to be lower than forecast in every year through 2021. The UK economy faces “a future that will be full of change, full of new challenges and above all full of new opportunities,” Mr Hammond told policymakers in the House of Commons in London.

Mrs May’s government has been rocked by resignations, rebellions and sluggish progress in Brexit negotiations, and Mr Hammond sought to strike an optimistic tone while limiting spending to fit the new economic reality. His ability to offer giveaways to win back support lost in June’s election is limited.

The announcement of Brexit funding shows he has relented on demands from more pro-Brexit factions of the cabinet to set aside money so the UK can walk away from divorce talks with the EU. It is also noteworthy that back in March 2016 – prior to the referendum – the OBR predicted much healthier growth of 2.2 per cent in 2017 and 2.1 per cent in 2018.

The fate of Mrs May’s government is tied both to a budget that is not a dud and to making progress in Brexit talks so the focus can shift to trade and securing a smooth transition out of the bloc.

The budget deficit will be £39.5bn for 2018-19, Mr Hammond said, compared with the £40.8bn forecast in March, and borrowing will be less than previously forecast over the next five years.