British Chancellor Philip Hammond admits Brexit vote means £122 billion extra borrowing

British Chancellor Philip Hammond said that the British economy was faring well in the wake of the referendum result but that growth would slow markedly next year

Britain's Chancellor of the Exchequer Philip Hammond leaves 11 Downing Street on his way to present his Autumn Statement in the House of Commons in London PHOTO: Reuters
Britain's Chancellor of the Exchequer Philip Hammond leaves 11 Downing Street on his way to present his Autumn Statement in the House of Commons in London PHOTO: Reuters

The Brexit effect will slash 2.4% off Britain’s economic output, British Chancellor Philip Hammond has revealed.

In the government’s first major economic announcement since the vote in June to leave the EU, the new chancellor said the economy was faring well in the wake of the referendum result but growth would slow markedly next year on the back of weaker business spending and a squeeze on household budgets from rising living costs.

Hammond told MPs that growth is now forecast to be 2.4% lower in 2020 than predicted back in March due to the results of the UK’s referendum to leave the European Union.

The announcement came as Hammond revealed that the budget deficit is forecast to be £30 billion in 2019-20, instead of the £10 billion surplus projected in March.

Over the six years from last April, Britain will borrow an extra £122 billion – the budget ‘black hole’ opened up because of the uncertainty created by EU withdrawal.

Delivering his first Autumn Statement, Hammond confirmed he is no longer seeking a budget surplus in 2019-20, as his predecessor, George Osborne, had pledged. Instead, the government is now committed to returning public finances to balance "as soon as practicable" in the next Parliament, which could mean as late as 2025.

As Hammond presented the forecasts by the government’s independent watchdog, the Office for Budget Responsibility (OBR), he said borrowing would hit £68.2 billion this year and £59 billion next year compared with the March forecast of £55.5 billion and £38.8 billion.

Its main predictions, compared with before the Brexit vote, are now:

  • Extra £122 billion of government borrowing over next five years
  • Public finances no longer expected to be back in surplus by 2019-20
  • Economy to grow 1.4% in 2017, compared with 2.2% forecast in March
  • Economy to grow 1.7% in 2018, compared with 2.1% forecast in March
  • Economy to grow 2.1% in 2019, compared with 2.1% forecast in March

During the speech, he explicitly blamed the referendum decision for the enormous hit to anticipated economic growth.

“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 said, who replaced Osborne as chancellor in the political change-over that followed the referendum.

The OBR had downgraded its 2017-18 forecast for next year alone from 2.2 per cent to 1.4 per cent, partly because of higher inflation due to sterling’s plunge.

The June 23 vote “makes more urgent than ever the need to tackle our economy's long-term weaknesses", including the “shocking” productivity gap, Hammond said.

Hammond also announced he is abolishing the Autumn Statement – insisting no other major economy makes hundreds of tax-and-spend changes every year.

After next year, the Budget will be staged in the autumn, with a downscaled spring statement, responding to the forecasts from the OBR - but with no major announcements.