In his Autumn Statement today, Philip Hammond said the Brexit vote will force the government to borrow more and underlined the urgent need to tackle the UK economy’s long-term weaknesses as the Office for Budget Responsibility cut growth forecasts for next year.
The chancellor said the economy had so far “confounded commentators” with its “strength and resilience” but he revealed the OBR had downgraded growth forecasts for next year from 2.2% to 1.4% as a result of the uncertainty caused by Brexit and higher inflation due to the fall in sterling.
Hammond said the Brexit vote would force the government to borrow £122bn more than hoped as he delayed government plans to balance the books.
“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,” he said. “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 but the prime minister and I remain 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.”
OBR chief Robert Chote explains some of the assumptions about Brexit that affected its forecasts:
• The UK will leave the EU in April 2019
• New trading arrangements will slow import and export growth in next ten years
• There will be a tighter migration regime in the UK and it’ll be a less attractive place for foreign workers
• EU-wide taxes, such as VAT, won’t change straightaway
• It didn’t take a view on whether there would be passporting – the EU-wide licences that financial firms are pushing to keep
Finally, from next year, the Autumn Statement will become the main Budget. The spring Budget in a few months will be the final spring Budget. Starting in autumn 2017, Britain will have an autumn Budget, announcing tax changes well in advance of the start of the tax year. From 2018 there will be a Spring Statement, responding to the forecast from the OBR, but no major fiscal event.