Author: Andrew Rettman
Posted: November 24 2016
Britain’s decision to exit the EU is to prompt €69 billion (£59bn) of extra borrowing, a UK watchdog has said, leaving poorer families less well off.
The Office for Budget Responsibility (OBR), a fiscal watchdog created six years ago, said in London on Wednesday (23 November) that the extra money would be needed over the next five years.
“The economy has not slowed as sharply as some forecasters feared in the wake of the referendum vote to leave the European Union, but it has slowed, and the outlook is weaker”, the OBR’s chairman, Robert Chote, said.
“We expect the quarterly growth rate of GDP to continue slowing into next year, as uncertainty over the UK’s future trade and migration regime delays business investment and as the fall in the pound squeezes real consumer spending by pushing up inflation”, he added.
The OBR had predicted growth of 2.2 percent in 2017 prior to the Brexit vote, but now forecast just 1.4 percent. It said Brexit would probably wipe out 2.4 percent of potential growth over the next five years.
That meant that the British treasury would have to abandon previous fiscal targets, the OBR said, with public debt expected to peak at 90 percent of GDP next year and with the budget deficit to remain high at 3.5 percent of GDP.
The OBR also said that “the negotiation of new trading arrangements with the EU and others” would “slow the pace of import and export growth for the next 10 years”.
Philip Hammond, the British treasury chief, told parliament the same day that he would have to continue welfare cuts in light of the figures.
He said he could only afford modest handouts to “just about managing families” and that he might have to “review” other promises on pensions.
He also said British workers would have to strive harder to compete with EU firms.
The Brexit vote “makes more urgent than ever the need to tackle our economy’s long-term weaknesses”, he said.
“In the real world, it takes a German worker four days to produce what we make in five … That has to change”, he said.
He told MPs that the British economy had “confounded commentators at home and abroad with its strength and its resilience” since the Brexit referendum in June, however.
He also indicated that Britain would maintain defence and development aid spending at current levels.
“We will meet our commitments to protect the budgets of key public services and defence. We will keep our promise to the world’s poorest”, the chancellor said.
“We are a great nation … Confident in our strengths,” he added.
Opposition MPs, such as Ed Miliband, the former leader of the opposition Labour Party, sad the OBR forecast was a “salutary warning” of what to expect if the UK failed to negotiate good terms with the EU.
“Isn’t it a very strong argument for us to remain as close as possible to our largest trading area, the single market, and inside not outside the customs union?”, Miliband said.
John McDonnell, Labour’s shadow chancellor, said the rising debt and welfare cuts showed the government’s “abject failure” to handle the situation.
The UK has pledged to start EU exit talks at the end of March in a process that is to last at least two years.
The government’s lack of clarity on whether it would stay in the single market or make a “hard exit” in order to curb EU immigration has also prompted criticism.
The OBR, on Wednesday, asked for “a formal statement of government policy as regards its desired trade regime and system of migration control”.
The Irish economy is also expected to suffer Brexit fallout.
The Economic and Social Research Institute, a think tank in Dublin, said on Wednesday that Irish exports to the UK would fall steeply if Brexit led to new UK-EU trade tariffs.
It said Irish exports to the UK, especially in the food sector, could drop by up to 30 percent.
It said overall exports would be likely to fall by 4 percent a year, resulting in an annual cash loss of €4.5 billion.