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As Brexit looms, Britain forecasts strong economy

Britain’s economy will grow far stronger than expected this year, finance minister Philip Hammond said in a budget update Wednesday, as the government prepares to trigger Brexit.

business Updated: Mar 09, 2017 11:49 IST
AFP
Pound sterling coins are pictured on a chalk drawing of a Union flag on the pavement in Trafalgar Square in central in London. Britain's Finance minister Philip Hammond earlier this week said he would keep chopping away at the deficit to get Britain fit to face Brexit.
Pound sterling coins are pictured on a chalk drawing of a Union flag on the pavement in Trafalgar Square in central in London. Britain's Finance minister Philip Hammond earlier this week said he would keep chopping away at the deficit to get Britain fit to face Brexit.(AFP)

Britain’s economy will grow far stronger than expected this year, finance minister Philip Hammond said in a budget update Wednesday, as the government prepares to trigger Brexit.

Conservative Prime Minister Theresa May has vowed to activate Article 50 of the EU’s Lisbon Treaty in the next three weeks, sparking a painful two-year divorce process -- and tense talks over the terms of Britain’s departure from the European Union.

“As we start our negotiations to exit the European Union, this budget takes forward our plan to prepare Britain for a brighter future,” Hammond told parliament as he unveiled a series of measures, including new investment for British schools, as part of the government’s latest tax and spend plans.

Hammond, called “Spreadsheet Phil” by fellow Conservative lawmakers for his dry delivery, was viewed as rather uninspiring by the British media and financial analysts when he gave his first budget statement in November.

Spreadsheet Phil

“I turn now ... to the (growth) forecast. This is the spreadsheet bit, but bear with me because I have a reputation to defend,” Hammond joked in reference to his nickname.

With UK activity performing better than expected following its shock June 23 referendum in favour of Brexit, Hammond predicted gross domestic product growth would come in at 2.0 percent this year, much higher than the government’s previous 1.4% GDP forecast.

As a result, the nation would borrow far less than expected this year.

But highlighting the uncertainty surrounding the UK economy as the country prepares to quit the EU, the 1.4% 2017 growth prediction given in November had itself been a sharp downgrade on a prior estimate of 2.2%.

GDP growth would stand at 1.6 percent next year, down slightly on a prior official estimate of 1.7%. Hammond also downgraded forecasts for 2019 and 2020.

Britain meanwhile stands on the cusp of triggering Article 50 by the end of March.

“Today, we reaffirm our commitment to invest in Britain’s future, and we embark on this next chapter of our history confident in our strengths and clear in our determination to build a stronger, fairer, better Britain,” Hammond insisted on Wednesday.

The government confirmed plans to pump more than £500 million into Britain’s education system, building new schools and renovating others.

However, Jeremy Corbyn, leader of the main opposition Labour party, lambasted the chancellor for “utter complacency” over the state of public services and living standards, arguing the economy was “not working” for vulnerable groups in society like the elderly and low paid.

Hammond was also criticised by small businesses for hiking up National Insurance bills for self-employed people. They accused him of breaking a Conservative manifesto pledge not to increase VAT, National Insurance contributions or income tax.

But the government said the move -- designed to raise £2 billion ($2.43 billion, 2 billion euros) over the next two years -- would help ease pressure on the social care system.

Borrowing was revised downwards to £51.7 billion ($63 billion, 60 billion euros) for the current 2016/17 financial year, from earlier guidance of £68 billion.

Sterling, which has fallen sharply since the Brexit vote, enjoyed a brief bounce on the revised estimates before edging lower.

“A neutral budget for sterling overall has indirectly provided the pound with some relief, given lack of materially deficit-worsening news, confirmation of stronger than expected growth this year and the Chancellor’s overall prudence,” noted City Index analyst Ken Odeluga.

‘Brighter future’

Theresa May has insisted that Britain will leave Europe’s single market or tariff-free zone in order to control EU immigration, thus delivering a so-called “hard” Brexit meaning the country will need a series of new trade deals globally.

Hammond argued Wednesday that his budget will provide “a strong and stable platform for those negotiations”.

He added: “It extends opportunity to all our young people. It delivers further public investment in our public services, and it continues the task of getting Britain back to living within its means.

“We are building the foundations of a stronger, fairer more global Britain.”