UK cuts growth forecast

Lawmakers secheduled to rule out a no-deal departure in a vote later yesterday


LONDON • Chancellor of the Exchequer Philip Hammond (picture) issued a fresh warning that leaving the European Union (EU) without a deal would damage the UK economy and leave people less well off.

He said Parliament’s rejection of Prime Minister (PM) Theresa May’s Brexit deal had created a “cloud of uncertainty” and crashing out would cause “significant disruption”.

The chancellor unveiled a lower growth forecast for 2019, cut to 1.2% from 1.6%. He presented an improved outlook for the public finances, though that’s dependent on the UK leaving the EU with a deal. A chaotic exit that would throw his forecasts into disarray.

“Last night’s vote leaves a cloud of uncertainty hanging over our economy,” Hammond said in Parliament. “The idea that some readily available fix to avoid the consequences of a no-deal Brexit is just wrong.”

He added though that the “economy itself is remarkably robust”.

The budget deficit will be lower in the coming years than the Office for Budget Responsibility (OBR) forecast in October, Hammond said in his Spring Statement yesterday.

The growth prediction for 2020 was kept at 1.4%, and the OBR sees an acceleration in the following year.

His statement comes after Parliament overwhelmingly rejected May’s Brexit deal for a second time on Tuesday night.

Lawmakers are expected to rule out a no-deal departure — a scenario the PM herself accepts would “damage” the UK — in a vote later yesterday.

That raises the prospect that Brexit will be delayed, bringing relief to businesses but extending the uncertainty hanging over the economy.

The problem facing Hammond is that the OBR forecasts were prepared on the assumption that Britain leaves the EU on March 29 in a smooth and orderly fashion. Any other outcome will have significant implications for the economy, tax receipts and the amount of money Hammond has to allocate to departments in his Spending Review this year.

Earlier yesterday, the government unveiled plans for temporary tariffs if the UK crashes out without a deal.

Britain will avoid imposing tariffs on most imported goods in the event of a no-deal Brexit, though officials said prices of key EU products including beef, cheese and cars will rise.

Still, Hammond said borrowing will be at its lowest level in 22 years. The OBR revised down its budget deficit forecasts for the next five years.

Borrowing will fall from £29.3 billion (RM157.85 billion) in 2019-20, compared to a forecast of £31.8 billion in October.

“I’m confident that we’re going to do a deal,” Hammond said on Brexit. “And when we do, the British people will fully expect us to fire-up our economic plan, to seize the opportunities as confidence in our economy returns.” — Bloomberg