State has room to run deficit if we have a hard Brexit – Lane

OUTGOING Central Bank governor Philip Lane has praised the Government’s handling of the economy in a U-turn after previous criticism.

Dr Lane yesterday appeared to play down his own earlier calls for the Government to make more budget savings, when he said that in the event of a hard Brexit, the State had room to run a deficit.

As recently as September last year, Dr Lane, who is set to become the chief economist at the European Central Bank when Peter Praet’s term ends in May, was urging the Government to save more.

The Central Bank of Ireland was saying the same as recently as January 29 in its economic outlook, when it warned that growth could fall to as little as 1.5pc this year in the event of a hard Brexit.

Dr Lane repeated the 1.5pc forecast at the European Financial Forum, a meeting of financiers in Dublin Castle yesterday, noting the economy would still be expanding even in the worst-case Brexit scenario and he suggested the Department of Finance had room to boost the economy.

“A further mitigating factor is that the state of the public finances will permit the running of a counter-cyclical fiscal deficit through the operation of the automatic stabilisers on tax revenues and transfer payments,” Dr Lane said.

The State recorded its first budget surplus since the onset of the financial crisis in 2018, thanks to a surge in company tax revenues that outpaced massive overspending in areas like health.

The surplus last year was around €100m, or about 0.1pc of gross national product, compared with a deficit of 0.1pc of GDP that had been seen in the Budget.

Meanwhile, British Prime Minister Theresa May is insisting Brexit will go-ahead on March 29 despite any breakthrough in her efforts to reopen the Withdrawal Agreement.

She will return to the House of Commons today to seek renewed backing for her renegotiates with Brussels – but there is growing scepticism among MPs that she is playing down the clock.

Taoiseach Leo Varadkar said he still anticipates the UK will leave the European Union at the end of March – but said work still needs to be done to avoid a disorderly exit.

He went off-script at the event in Dublin yesterday to make the point that protecting the country’s peace process is “much more important than money and jobs”.

Later in the Dáil, he said: “Managing a no-deal Brexit would be an exercise in damage limitation. It would be impossible to maintain the current seamless arrangements between the EU and the United Kingdom or to put in place arrangements equivalent to those provided for in the Withdrawal Agreement.”

However, all eyes remain on London where Mrs May has been forced to deny accusations that she is planning to delay Brexit. It follows reports her chief negotiator Olly Robbins was overheard saying the government would ask parliament in late March to back her agreement or seek an extension to the Brexit deadline.