Hammond talks up United Kingdom economy despite Brexit 'cloud'

Daniel Fowler
March 16, 2019

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

The thinktank also warned that it could not determine whether austerity was ending and public services moving "decisively upwards after almost a decade of unprecedented cuts" until the conclusion of the chancellor's spending review, which will be unveiled alongside the autumn budget later this year.

He added: "I need to be straight with the House: a no-deal Brexit would deliver a significant short- to medium-term reduction in the productive capacity of the British economy".

But this depends on a Brexit deal being completed in the next few weeks and the "uncertainty that is hanging over our economy lifted".

Growth forecasts in 2020 and 2021 stood at 1.4 and 1.6 percent respectively, compared with forecasts of 1.4 percent for both years made in October.

But the OBR also warned that a disorderly no-deal would pose a risk to the predicted growth rates, as the numbers are based on an assumed scenario in which the United Kingdom leaves the European Union with a deal on March 29, and enters a transition period. "Higher unemployment, lower wages, higher prices in shops: that is not what the British people voted for in June 2016".

This is after parliament on Tuesday overwhelmingly rejected the country's draft Brexit divorce agreement with Brussels.

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And, in many respects, the word "if" was the most significant of all in a setpiece speech which warned of significant repercussions if there is a no-deal Brexit. Chamber chief executive Ann McGregor said: "Derry/Londonderry will welcome Philip Hammond's comment that the negotiation of a City Deal for Derry is "progressing", despite him failing to provide further details".

He said Britain's public debt was set to fall sustainably "for the first time in a generation".

However, Britain's independent budget forecasters said nearly half of Hammond's fiscal headroom might be lost, depending on how official statisticians treat student loans in the public accounts. Accordingly, we think that a turning point has been reached: "fiscal policy no longer will dampen the economy, strengthening the case for the Monetary Policy Committee to raise interest rates shortly after the economic disruption created by Brexit uncertainty has faded".

"I hoped we would do that last night, but I am confident that we, as a House, will do it over the coming weeks".

Mr Johnson said there was a consensus among economists that the United Kingdom economy would have been about 2% bigger had the Brexit referendum not occurred.

"While no deal would wreak certain havoc for many firms, we must also avoid being lulled into thinking an exit deal alone is a substitute for providing a real economic impetus that lowers costs, spurs productivity growth, and supports businesses as they adjust to Brexit, whatever its form".

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