UK's Hammond cuts growth outlook amid Brexit warning

Chancellor of the Exchequer lowers growth forecast for 2019, cut to 1.2 per cent from 1.6 per cent and says no-deal Brexit would hurt economy

Britain's Chancellor of the Exchequer Philip Hammond has lowered UK forecast. Reuters

UK Chancellor of the Exchequer, or Finance Minister, Philip Hammond issued a fresh warning that leaving the European Union without a deal would damage the British economy and leave people less well off.

He said parliament’s rejection of 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 per cent from 1.6 per cent. He presented an improved outlook for the public finances, though, that’s dependent on the UK leaving the European Union with a deal, according to Bloomberg. A chaotic exit that would throw his forecasts into disarray.

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

"Leaving with no deal would mean significant disruption in the short and medium term and a smaller, less prosperous economy in the long term, than if we leave with a deal," Mr Hammond said, according to Reuters.

"Higher unemployment, lower wages, higher prices in the shops. That is not what the British people voted for in June 2016."

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, Mr Hammond said in his Spring Statement on Wednesday. The growth prediction for 2020 was kept at 1.4 per cent, and the OBR sees an acceleration the following year.

His statement comes after parliament overwhelmingly rejected Prime Minister Theresa May’s Brexit deal for a second time Tuesday night.

Policymakers are expected to rule out a no-deal departure - a scenario the premier herself accepts would “damage” the UK - in a vote later Wednesday. That raises the prospect that Brexit will be delayed, bringing relief to businesses but extending the uncertainty hanging over the economy.

The problem facing Mr 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 Mr Hammond has to allocate to departments in his Spending Review this year.

The OBR forecasts follow recent downgrades by the Bank of England and the OECD. The latter published a huge cut this month, predicting expansion of just 0.8 per cent. That would be the weakest performance since the 2009 recession.

Earlier today, 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 European Union 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 (Dh141.63bn) in 2019-20, compared to a forecast of £31.8bn in October, he said.

“I’m confident that we’re going to do a deal,” Mr 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.”