LONDON Britain has cut its official forecasts for economic growth for the next two years, finance minister Philip Hammond said on Wednesday, as he delivered the country’s first budget statement since voters decided to leave the European Union.
The weak public finances leave Hammond little room to ramp up public spending or make big cuts to taxes.
Indeed, Hammond said the government would need to borrow billion of pounds more over the next five years, with net public sector debt forecast to rise to a peak of 90.2 percent in 2017/18, up from a projection of 81.3 percent in March.
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 also said the OBR now saw growth in 2018 at 1.7 percent compared with March’s forecast of 2.1 percent.
“Our task now is to prepare our economy to be resilient as we exit the EU and match-fit for the transition that will follow,” Hammond told parliament.
“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.”
Britain’s economy has so far largely withstood the shock of the Brexit vote, wrong-footing the Bank of England and almost all private economists who expected a bigger immediate hit.
Brexit supporters, who say Britain’s economy is likely to fare much better than the widespread views of a slowdown, are likely to question the credibility of the latest OBR forecasts.
But Hammond, announcing the first detailed economic plans of Prime Minister Theresa 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.
Economic growth in 2019 and 2020 was seen at 2.1 percent each year, no change from forecasts for both years made in March, he said, citing the OBR’s forecasts.
(Writing by William Schomberg, editing by Guy Faulconbridge)