Growth weakest since financial crisis for Chancellor Philip Hammond as Brexit plans fall

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CHANCELLOR Philip Hammond was today faced with the weakest UK growth since the financial crisis despite better news on the public finances.

The latest forecasts from the Office for Budget Responsibility in the Spring Statement came after MPs rejected Theresa May’s Brexit deal by a massive 149-vote margin, paving the way to votes on the option of a no-deal Brexit or — more likely — an extension of Article 50.

The huge reverse for the Government left a “cloud of uncertainty” over the UK, the Chancellor said, although “the economy itself is remarkably robust”.

The fiscal watchdog cut its growth estimates for this year from the 1.6% forecast made in October’s Budget to 1.2 % — in line with a pessimistic Bank of England, and the worst for the UK economy since 2009’s 4.3% slump. For 2020, growth is predicted to be 1.4%, unchanged from October.

Despite the growth blow, Hammond has been buoyed in recent months by stronger public finances, with January producing the healthiest monthly surplus in 26 years thanks to strong income tax receipts.

The OBR trimmed its £25.5 billion borrowing forecast for the present financial year by £3 billion. Over the forecast period, £28 billion has been wiped off the deficit, culminating in borrowing of just £13.5 billion by 2023/4 — the lowest for 22 years.

Hammond’s central fiscal target is to keep the UK’s underlying deficit to 2% of GDP in 2020/21, but as of October the deficit stood at 1.3%, giving him some £15.4 billion of leeway to spend in an unlikely no-deal scenario. That headroom has widened to £26.6 billion according to the OBR, giving the Chancellor more fiscal firepower.

The impact of Brexit uncertainty on business investment has been one of the culprits behind the growth downgrade. “Our research suggests that cumulatively the impact on GDP has been about 3% up to this year thanks to Brexit — and bear in mind that that is all before Brexit has happened,” Nomura’s chief economist George Buckley said. Business investment spending is also likely to fall for five quarters running for the first time since 2009.

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March 14, 2019 |
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