British economy would considerably worsen amid no-deal Brexit, says institute

Daniel Fowler
October 9, 2019

A rise in public spending would not stop the economy entering recession in 2020, however, the IFS warned.

"It is hard to imagine a set of short-term fiscal targets that would make sense both in the event of the United Kingdom leaving the European Union with a deal and in the event of leaving without a deal", said the IFS in the report.

The Institute for Fiscal Studies (IFS) Deputy Director Carl Emmerson, warned in his latest report released on Tuesday, a no-deal Brexit will send public debt rocketing to levels not seen for almost 50 years, as cited by Reuters.

But even before the cost of a possible no-deal Brexit is factored in, the think tank said the government was set to break its own spending rules.

The research was part of IFS's Green Budget annual assessment of public finances, published as chancellor Sajid Javid gears up to deliver his first Budget this autumn.

Debt is projected to rise substantially in that scenario, climbing to nearly 90%of annual economic output for the first time since the mid-1960s, as the government borrows more to increase spending and kickstart economic growth.

IFS director Paul Johnson urged the prime minister to resist slashing taxes in the next budget after predicting that the deficit will climb to above £50bn next year, more than double the latest forecast by the Office for Budget Responsibility (OBR). "In so doing, we will retain a fiscal anchor to public spending so that decisions are taken with a view to the long-term sustainability of the public finances".

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In the case of a no-deal Brexit, it should implement "carefully targeted and temporary tax cuts and spending increases where it can effectively support the economy", he said.

However, even with "substantial" government spending, it said it expects the United Kingdom economy to flatline for two years following no-deal.

"It will be crucial that these programmes are temporary: an economy that turns out smaller than expected can, in the long run, support less public spending than expected, not more".

However, Mr Schulz added that a further Brexit delay would create more uncertainty, denting investment and leaving growth at around 1% a year.

Commenting on the change to lorry import taxes, Meredith Crowley, an economist specializing in worldwide trade from the University of Cambridge, said the UK's heavy goods industry is facing "some difficulty with Brexit".

Even if Brexit were called off, the flatlining of business investment in theUnited Kingdom over the past three years would be hard to unwind, Schulz said at a media briefing on Tuesday.

"But with the chances of us leaving in less than four weeks without a deal increasing by the day, the Prime Minister has missed a real opportunity to back British farmers".

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