LONDON: Brexit will cause Britain’s economic growth to slow sharply and blow a hole in government finances that will require it to borrow an extra £122 billion over five years, a gloomy budget update revealed Wednesday.
The budget black hole, worth $152 billion, covers the period until early 2021, according to official forecasts.
“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 neighbours including France and Italy,” Hammond told lawmakers.
ING economist James Knightley said the chancellor had been handed “little room for manoeuvre”.
“Hammond has delivered an Autumn budget statement that highlights the damage that Brexit will likely cause,” Knightley added.
In a keenly-awaited budget, Hammond 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 let up after 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.
John McDonnell, economy spokesman for the main opposition Labour Party, was scathing in response.
“We now face Brexit, the greatest economic challenge of a generation, and we face it unprepared and ill-equipped,” McDonnell told a rowdy parliament.
“Today’s statement places on record the abject failure of the last six wasted years (since Labour lost power) and offers no hope for the future.”
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 per cent 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.
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 two-year 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 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 Wednesday.
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 per cent by 2020 from the current 20 per cent.
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 prioritise technologies including robotics, industrial biotechnology and medical technology.