Autumn Statement: Government set to borrow more as economy slows down

BREXIT will cause Britain's economic growth to slow sharply and blow a hole in government finances that will require it to borrow an extra 122 billion pounds (US$151 billion) over five years, a gloomy budget update revealed yesterday.

In its review of Chancellor of the Exchequer Philip Hammond's Autumn Statement and the release of growth and borrowing projections from the Office for Budget Responsibility (OBR), the Institute of Fiscal Studies (IFS) said British workers faced the "dreadful" prospect of no real-terms wage growth for a more than a decade. Later, Mr Hammond added on Sky News, "To me it makes sense, given the warning signals from the OBR report, to keep a little bit of firepower in the locker, to build a little bit of a reserve so that if there is a slowdown next year, we've got enough capacity to support the economy, to protect jobs, to ensure that the economy can get through any headwinds it encounters".

The OBR expects the economy to grow by 1.4% in 2017, down from the 2.2% it predicted in March. He noted that this is equivalent to the IMF's forecast for growth in Germany next year, and better than forecasts in Italy and France. Meanwhile, the United Kingdom economy will expand 1.7% in 2018, rather than the expected 2.1% and by 2.1% and 2.0% in the following two years.

In a keenly awaited budget, he unveiled a package of UK-wide investment projects, including the building of homes and road improvements.

He also said he would give small businesses in rural areas a tax break worth up to £2,900 per year by increasing the Rural Rate Relief, while the National Living Wage will increase from £7.20 per hour to £7.50 in April next year, which Hammond said is a pay rise of £500 a year to the average full-time worker.

He said the slower economic growth, coupled with higher inflation and lower tax receipts, meant the country could no longer balance the budget by 2020 - a key target of former Prime Minister David Cameron's government.

Mr Hammond's punchline was that this Autumn Statement would be his first and his last.

The Treasury had predicted that the economy would contract in the first quarter after a vote to leave the European Union, although that was based on the assumption that Article 50 would be triggered immediately, starting the process of leaving.

The Chancellor also announced that he will abolish the Autumn Statement and move the main budget statement from the spring to the autumn.

Plans to ban certain costs incurred by renters of residential properties has already had an impact, with share prices of estate agents slumping in trading Wednesday. He confirmed corporation tax will fall to 17% from 20% by 2020 as planned, which the government said would be the lowest overall rate of corporate tax among the G20 nations.

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